he seems to have taken some time to grasp its full implications. In 1999,
Blair berated Paddy Ashdown, the Liberal leader, for the policies the
Liberal Democrats were pursuing on student support in Scotland, which
were contrary to those being pursued by the government at Westminster.
‘You can’t have Scotland doing something different from the rest of the
country’, Blair complained.
‘Then you shouldn’t have given the Scots devolution’, Ashdown retorted,
‘specifically, the power to be different on this issue. You put yourself in a
ridiculous position if, having produced the legislation to give power to the
Scottish Parliament, you then say it is a matter of principle they can’t use it.’
Tony Blair (laughing): ‘Yes, that is a problem. I am beginning to see the
defects in all this devolution stuff.’18
Yet, if the Scottish Parliament were to follow exactly the same policies as
those pursued at Westminster, it might be wondered why it should be set
up in the first place.
Social democracy presupposed a strong state and a centralised state.
That was why it had been opposed by leading figures on Labour’s left,
such as Aneurin Bevan, who, when establishing the National Health
Service, rigorously set his face against any separate Welsh, Scottish or
Northern Irish Health Service. It was to be a National Health Service, and
its benefits would be provided on the basis of need and not of geography.
That was also the reason why devolution had been opposed in the 1970s
by Neil Kinnock, who then regarded himself as Bevan’s disciple, and
declared in 1976 that devolution ‘could be an obituary notice for this
movement’.19 ‘We shall’, Kinnock argued in 1978, ‘be introducing into all
18 Paddy Ashdown: The Ashdown Diaries, vol. II: 1997–1999 (Harmondsworth: Allen
Lane/Penguin, 2001), p. 446, 7 May 1999.
19 Labour Party Conference, 1976, cited in Miles Taylor, ‘Labour and the Constitution’, in
Duncan Tanner, Pat Thane and Nick Tiratsoo (eds.), Labour’s First Century (Cambridge:
Cambridge University Press, 2000), p. 180.
political considerations an argument that has barely figured at all in
British political dialogues and discussions – We have had divisions on a
class basis, but not on a geographic or nationalistic basis.’20
For social democrats, only a strong centralised state could evaluate the
needs of different social groups and ensure that redistribution was
effective. But devolution would fragment the power of the centralised state
and cut it into pieces. There could not, in the ideology of social democracy,
be a separate Scottish or Welsh political will; for the problems of securing
equality in Scotland or in Wales were no different in nature from the problems of securing it in England. These problems should be resolved not by
establishing toy-town parliaments in Edinburgh and Cardiff, but only by a
strong social democratic government at Westminster.
The consequences, less than a decade after the Scottish Parliament and
the National Assembly of Wales have been established, would have confirmed Aneurin Bevan’s worst fears. In a number of areas of public
policy – residential care for the elderly, the cost of prescriptions, student
support, city academies, foundation hospitals – the dispensation in
Scotland and Wales is quite different from that in England. The Scottish
and Welsh devolved bodies have chosen to be more generous than
Westminster; they have decided not to adopt city academies, foundation
hospitals or top-up fees; they have been, it might be said, Old Labour
rather than New Labour.
Yet, far from seeking to counteract these trends, the Blair government,
in its final days, sought to emphasise the theme of devolution, arguing
that it should now be applied to England, though in a different form from
the ill-fated regional assemblies proposed for the North-East in 2004, and
rejected in a referendum. The Blair government proposed ‘double devolution’ in England, devolution not merely to local authorities, but also to
local electors who would be encouraged to use new instruments of direct
participation in order to overcome what many Blairites saw as a crisis of
disengagement in British democracy.21 Whatever the merits of such a
programme, it would be likely, if carried out, to increase geographical
inequalities in England, not to mitigate them. It therefore runs counter
to social democracy as traditionally understood, and even to the New
Liberalism of the early twentieth century, which also sought to equalise
welfare opportunities between those living in different parts of the
20 House of Commons Debates, 5th series, vol. 941, c. 1540, 10 January 1978.
21 See Geoff Mulgan and Fran Bury, Double Devolution: The Renewal of Local Government
(London: Smith Institute, 2006).
country. It has much more in common with the Old Liberalism of
W. E. Gladstone, a devolutionist but a strong opponent of all forms of
social democracy, redistribution and state action in the economy, which
he slightingly termed ‘construction’, than with contemporary political
doctrines.
In his Fabian pamphlet, The Third Way, Tony Blair claimed that the
main aim of social democracy was the promotion of ‘social justice with
the state as its main agent’.22 It is difficult, however, to see how the state
can promote social justice if it has been fragmented and cut into pieces by
devolution.
IV
What, then, remains of social democracy after ten years of Tony Blair?
What has been the Blair effect? What is there that has been ‘New’ about
New Labour? Tony Blair applied the epithet primarily to Labour’s new
approach to reform of the public services. For the party seemed imprisoned in an old-fashioned mindset according to which the public sector
was inherently good and the private sector inherently bad. New Labour
sought to escape this crude dichotomy. The essence of New Labour was
that public services needed to use the techniques of private business and
the market to increase efficiency. Injections of new money into the public
services, therefore, were to be dependent upon reform. Moreover, the
state should no longer be expected to be the sole provider of public services. Thus, while schooling and treatment under the National Health
Service were to remain free at source, the business sector would be
encouraged to finance new schools – city academies – for the state sector,
particularly in the run-down inner cities; while foundation hospitals
would be allowed, and indeed encouraged, to use contracts with private
bodies to improve their services.
It is, however, somewhat odd to call all this ‘new’. It is new only for
those on the left. For the Thatcher and Major governments had already
shown that public services might be best run by a mixture of private and
private money, and that the state should no longer be a monopoly
provider. These doctrines were new, therefore, only for the Labour Party.
There is, h
owever, just one area where Blair can claim to have rejuvenated social democracy. It lies in the massive increase in public expenditure, especially on the NHS, after 2001. This led to the first increase in the
22 Tony Blair, The Third Way (London: Fabian Society, 1998), p. 1.
public sector share of gross domestic product since the 1970s, the last
period of Labour government. It had been made possible by Gordon
Brown’s prudential economic policies from 1997 to 2001, policies which
had gained the confidence of the financial markets, and therefore allowed
expansion of the public services to occur safely. The increase in public
expenditure constituted a radical break with the policies of the Thatcher
and Major governments, and it has transformed even the attitude of the
Conservative Party to the public services. For, at the time of writing, David
Cameron, the Conservative leader, is insisting that the Conservatives
would follow a ‘prudent’ policy in government. By this he means that they
would ensure that the public services were fully protected before embarking upon any programme of tax cuts. Maintaining standards in the public
services would be the most important priority. Such a stance offers a striking contrast to the position taken by Margaret Thatcher as opposition
leader in the 1970s, although of course tax rates were much higher then
than they are today. It is possible, nevertheless, that the increases in public
expenditure since 2001 will permanently shift the terms of political
debate, so that the mark of prudence in a government will no longer be
that it seeks to hold taxes down, but that it maintains expenditure on the
public services.
Apart from this, perhaps important change, however, it is difficult to
point to any other ways in which Blair has been able to breathe life into
the dry bones of social democracy. This does not mean that he has not
achieved good things in government; and it would be wrong to suggest
that Blair’s vision of social democracy, the ‘Third Way’, or any of the
other sobriquets which it has been given, is merely a clever soundbite,
designed to hide the fact that his policies have been essentially a continuation of those of the Thatcher and Major governments. Blair has tried
hard to humanise the neo-liberal economy which he inherited. When
John Major became Prime Minister in 1990, he indicated that he wanted
to make Britain a country at ease with itself after the radicalism of the
Thatcher years. Blair has sought to do the same, and has perhaps done
more to help achieve this aim. For he has emphasised, to a far greater
extent than the Conservatives did, the problem of social exclusion, and
has sought new and more sophisticated policy instruments to combat it.
There is some difficulty in evaluating the success of these instruments,
however, since many of them – and, in particular, the measures taken to
improve education and training – will yield their results only in the long
term, and not over a period of one, or even three, parliaments. Moreover,
under the Blair government, the trend towards greater inequality of
incomes, apparent under the Conservatives, appears to have been halted.
Nevertheless, the central concern of the Blair government has been not
with securing relative equality between different social groups, but with
combating social exclusion, a very different thing.
Thus it is only when seen from the standpoint of a demoralised left that
Blair can be said to have rejuvenated social democracy. Seen from any
other standpoint, New Labour may be regarded as a form of accommodation, designed to hide from those on the left the extent to which the party
was accepting the new settlement built by Margaret Thatcher and John
Major. Perhaps this is not Tony Blair’s fault. For it may be the case that
there is no longer, and has not been for some time, a real social democratic alternative to the Thatcher/Major settlement.
Political scientists are accustomed to distinguish between ‘position’
politics and ‘valence’ politics.23 The ‘position’ politics of conflict between
alternatives is a much rarer phenomenon in British politics than is sometimes thought. It was present, no doubt, in 1945 and 1979, and in 1983,
the year of Labour’s most catastrophic post-war defeat. Since then it
has come to be replaced by ‘valence’ politics, a politics based upon agreement about ends, but disagreement about means. ‘In our view’, argue the
leading students of elections in Britain, ‘the most important factor
underlying electoral choice is valence – people’s judgments of the overall
competence of the rival political parties’.24 There has been, since 1992,
broad agreement that the fundamental framework established by
Margaret Thatcher, based on privatisation, a liberal economy and a weakened trade union movement, should be maintained. The point at issue at
general elections since 1992 has been which party would administer that
dispensation most effectively.
Tony Blair’s essential skill has been to transform position politics
into valence politics. For, where Labour had taken up a position in clear
opposition to that of the Conservatives, that position had often been
electorally unpopular. Blair insisted, therefore, that a Labour government would not run the economy in a radically different way from the
Conservatives, but would run it more competently; he insisted that a
Labour government would not restore the powers of the trade unions by
reversing the legislation of the Thatcher years putting them under statutory control; he insisted that a Labour government would nationalise
23 See Donald Stokes, ‘Valence Politics’, in Dennis Kavanagh (ed.), Electoral Politics (Oxford:
Clarendon Press, 1992), pp. 141–64.
24 Harold Clarke, David Sanders, Marianne C. Stewart and Paul Whiteley, Political Choice in
Britain (Oxford: Oxford University Press, 2004), p. 9.
nothing. Indeed, the general election of 1997 was the first since the
Labour Party had been formed in which nationalisation was not an election issue. The issue, rather, was what Labour would privatise, not what it
would nationalise. It was not unfair for Douglas Hurd to say, that ‘the
Conservatives lost the 1997 election, having won the fundamental arguments’.25 Tony Blair won elections not through a radical upsurge from
below, but because he was perceived as a more competent leader than his
opponents, and a leader, moreover, who would not disturb the gains that
had been achieved during the period of Conservative government. Tony
Blair, like Harold Macmillan, proved himself a master of the politics of a
post-ideological age. Both succeeded in accommodating their parties to
uncomfortable realities, even if the methods they chose were very
different. But Tony Blair was also a master of the politics of a post-social
democratic age.
The emasculation of social democracy followed inevitably from Blair’s
acceptance of the constraint of globalisation, a ‘golden straitjacket’ as the
American commentator Thomas Friedman has called it.26 For soc
ial
democracy has always been a doctrine whose fundamental premise was
that the processes of economic and social change could be controlled by
government. Globalisation has, for the time being at least, undermined
that premise, narrowing if not eliminating entirely scope for the politics
of redistribution. The social democratic doctrine of the primacy of
politics has been replaced by the neo-liberal doctrine of the primacy of
economics.
There is of course no inherent reason why this new dispensation
should prove permanent any more than the post-war Attlee settlement
was to prove permanent. Perhaps the future will show that the postThatcherite settlement is just as impermanent, or perhaps an original and
creative social democrat thinker will arise to formulate a new social
democratic doctrine, to show a path forward for social democrats in a
globalised world. But the Blair effect, while thoroughly beneficent in so
many areas of public policy, has done little to controvert the proposition
that social democracy no longer constitutes an effective doctrine for a
modern government.
25 Douglas Hurd, ‘His Major Achievements’, Daily Telegraph, 30 June 1997, p. 18.
26 Cited in Sheri Berman, The Primacy of Politics: Social Democracy and the Making of
Europe’s Twentieth Century (Cambridge: Cambridge University Press, 2006), p. 209.
PA RT I I
Economics and finance
10
The Treasury and economic policy
Preliminaries
What was Tony Blair’s economic legacy? Inferring the economic effects of
government policy is never an easy task. We need to ask how things would
have differed had policies been different. Posing that counterfactual faces
challenges. There are many other influences on events, apart from what
government does. Economic entities depend on choices made by countless households and firms, and these in turn reflect their resources, technologies, unobservable expectations and beliefs about future policy (and
other aspects of their environment). None of these are set in stone. Then
there is the speed of impact. Sometimes economic policy has quick
effects. And some variables can overreact. Often, though, repercussions
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