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The State We’re In 
by Will Hutton.
Cape, 352 pp., £16.99, January 1995, 0 224 03688 2
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Will Hutton, the Guardian’s economics editor, has produced a book which is part show-biz – it carries a passionate puff from Ian McEwan on the front cover and leapt straight into the bestseller list – and part political event: it clearly aims to provide a sweeping economic and political platform for Labour, has been elaborated with the help of Tony Blair’s adviser, David Miliband, and sees Blair’s election as leader as an epochal event, finally settling Labour’s commitment to social democracy. All of which sounds very much as if Hutton hopes to become a key adviser in a future Blair administration, though the Tories may well want to know how much of the book really represents Labour policy. The State We’re In will almost certainly be a powerfully influential book among Labour’s élite, but many of its positions – particularly its out-and-out republicanism – are considerably bolder than any Labour’s leadership is likely to own up to.

The heart of Hutton’s book lies in his raking critique of the Thatcher period. This, heaven knows, has been done before but he does it exceedingly well. The sheer social vandalism of those years has lost none of its capacity to shock: the fact that homelessness has increased in every single year since 1979, an utter disgrace committed as a conscious act of policy; the £3 billion thrown away on bringing in and then abolishing the poll tax; the £22 billion given away in public assets sold under cost; the dreadful damage to the manufacturing base, which recaptured its 1979 level of production only in 1988; the crazy adherence to monetarism despite the fact that monetary growth in 1983-8 averaged 14.7 per cent while inflation averaged 4.7 per cent, quite invalidating the alleged causal link between these figures; the destruction of the Serps pension scheme and thus the deliberate infliction of poverty on millions of old people; and the wicked and deliberate increase in inequality of every kind. This last is what makes all the bombast about ‘Tory radicalism’ and Major’s ‘classlessness’ such a terrible, empty sham, for, as Hutton points out, the net effect of all these changes was ‘the entrenchment of the old class structure that Tory radicals affected to despise’, with the gap between those able and those unable to afford private health, welfare and education far, far worse at the end than when it began. Hutton is also rightfully scathing about the extent to which systematic Tory patronage has created an état conservateur quite comparable to the hegemonic état Gaulliste built up in France during the 16 unbroken years of Gaullist rule. Perhaps the choicest example is the appointment as director of the Immigrant Appeals Panel of Keith Best, the disgraced Tory MP found filling in false names on BT share application forms. It’s not just that Best is not an appropriate man to make life-and-death decisions over immigrants desperate not to be deported back to, say, Iran or Iraq, but that he is actually the sort of person we’d like to export to somewhere else if only someone would take him.

Hutton then outlines his prescription for turning it all around – essentially a mixture of left Keynesianism with a thoroughgoing programme of constitutional reform. Personally, I agreed with all this before I picked the book up but felt, nonetheless, a steadily rising dissatisfaction as I read on. Hutton’s passionate advocacy of something I already believed in gradually undermined my confidence in it, leaving me at the end a weaker believer in the same case and more than ever aware of its faults and deficiencies.

Things start to go wrong on page two. It is an odd treatise on political economy which, by this stage, is already deeply into the national crisis occasioned by ... the breakdown of royal marriages, which, apparently, are ‘symbolic of the age’. It is all so pantingly retailed: the indignity suffered by the Queen, the horror of the Prince of Wales’s acknowledgment of his adultery and, worse still, his desire to be ‘defender of many faiths’. All of which ‘opens up profound questions’, produces ‘deep divisions fissuring national life’ which, horribile dictu, ‘ensure that apparently innocuous royal remarks are loaded with political significance, further disabling the monarchy as a national institution.’ You can feel the weight of this mighty crisis pressing down until you reflect that, being a republican, Hutton is presumably pleased by this lucky break for his side of things. But on he goes: the country is in a state of ‘social and economic disintegration’, ‘Britain’s national affairs are reaching explosive levels of stress’ and ‘the deepest parts of the British psyche’ are affected, ‘there is a general sense of fear and beleaguerment,’ even our ‘military values are suborned’ so that the Armed Services are unwilling or unable to fight, for they are ‘no longer clear what they might be fighting for’. And, yes, the fearful giant, Negative Equity, stalks the land.

This is all faintly ridiculous: anyone who lived through the last war or any of a hundred tougher crises in countries less lucky than ours would be able to tell Hutton how to recognise ‘explosive levels of stress’ or real ‘social and economic disintegration’ when he sees them. And you only have to look at the Gulf War or the Falklands to see that our Armed Services have, on request, fought well; and now that they have been told that their last 26 miserable years in Northern Ireland will probably end in Irish unification after all, they have accepted it without a murmur – behaviour for which, if one thinks of the French Army’s behaviour over Algeria, one might feel profoundly grateful. A country obsessed by so trivial a problem as negative equity is fortunate indeed. As Hutton trudges through British institutions, denouncing them left and right, one’s reservations mount up, even when one agrees with his choice of target. Laying into the legal system, the courts and the Bar, he angrily concludes that ‘the first loyalty of these archaic bodies is less to justice than to the maintenance of order through the seamless web of English case law accumulated over centuries.’ Has Hutton ever been in a country where the authorities, putting the rule of law aside, announce allegiance instead to their notion of justice? Has he any idea of how terrifying that is? Almost as frightening, indeed, as an army which needs, as its reason to fight, not the orders of the civil power, but ‘military values’ or ‘something worth fighting for’. It’s not that Hutton is wrong but that he is overconfident, has taken on far too much and wants, megalo-style, to connect everything up to everything else.

Hutton is on surer ground with economics, though even here some ambivalence remains. All of Thatcher’s crucial steps, he writes, had been taken by the end of 1980: ‘Scrapping exchange controls, allowing the pound to float to new heights and creating the conditions for the credit boom created the imbalance between production and consumption that still plagues the British economy today.’ This is, rightly, one of Hutton’s great themes: that we consume too much, invest too little here, invest too much abroad, demand ridiculously high returns, are prone to short-termism, and are thus run off the block by foreigners who behave more rationally, extending longer-term, lower-interest finance to their companies – which prosper accordingly. So our growth is lower, we sink in the international league table, and we can’t and won’t do anything to remedy it because of the domination of our economy by the City, whose strong liquidity preference and tendency to measure investment in Britain against the best it can achieve in, say, Malaysia or Liechtenstein, conspire to starve our real economy of what it needs. This is where Hutton’s background as a former stockbroker serves him well. The historic yield on British equities is over 4.5 per cent, which is a lot higher than anyone else pays (the East Asian markets pay under 1 per cent). In effect, this means that British investors vote for immediate income rather than capital growth; indeed, that they heavily discount capital growth. This in turn dooms companies to distribute to shareholders capital they ought to keep and re-invest, so the prophecy of slow growth becomes self-fulfilling. The net result is that we consume too much, and invest and produce too little.

This is all perfectly true, but much of the time Hutton gives the impression that he thinks it all began with Thatcher. At other points he writes that these have been characteristic features of our City-dominated capitalism since before the First World War, and that only in the years between 1931 and 1951 were production and welfare favoured over finance, and that the Tories’ ‘bonfire of controls’ in the early Fifties signalled a return to the old system. This is an interesting periodisation but it is not wholly worked-through; Hutton seems to feel, for example, that the 1970-74 Heath Administration represents a tremendous lost opportunity for the Labour movement. Heath’s goals, he argues, were wholly different from Thatcher’s. ‘While her aim was to remove the problem of union power by attacking the source of its strength and so to fragment the labour market into powerless, atomised units, Mr Heath’s objective was to create a union movement that could be a European-style social partner, capable of delivering on national wage agreements and adapting to technological change.’ There is a hint here that the unions might have saved themselves a deal of agony if they had embraced the logic of Heath’s European initiative and, then and there, chosen the West German model of labour relations as the best option they were ever likely to get.

This would make quite a difference to Hutton’s case. Thus he condemns the way the CBI effectively killed the Bullock Report on industrial democracy by insisting that British workers ‘simply could not be trusted to behave moderately or to have access to commercially confidential information’, but given what he feels about the unions’ Luddite reaction to Heath’s labour laws, surely he would agree? The point comes out more powerfully when, in a long section of the book, he contrasts the Sumitomo Bank’s patient intervention to save the ailing Toyo Kogyo company, seeing it through to become a million-unit producer of Mazda cars, with the failure of the British banks to do the same for British Leyland. But frankly, were the banks wrong? If you lived in Oxford, as I did throughout most of this period, you could not be unaware of the endless stories of ‘skiving’ in the Sixties and Seventies, of workers paid to play cards and the like; of the endless unofficial actions called by shop stewards; of the ludicrous multiplicity of unions at the plant; and of the hopeless quality of management. When the Labour Government intervened in the way Hutton would approve of, it made things worse by imposing Lord Stokes. Stokes ran around the world getting orders he had no hope of fulfilling because he had no grasp at all of the production process. More remarkable still, he campaigned on countless platforms for entry to the EEC, apparently unaware that his company would be destroyed by European competition; which in time it was. It was all a most dreadful and probably unsaveable mess from a long way back. Would Hutton have wanted his pension fund invested in it? That is the acid test.

The probable answer to this question has to be borne in mind when Hutton deplores Thatcher’s record in labour relations: the public-sector unions were ‘singled out for special treatment’; the miners were ‘beaten savagely’; the Wapping ‘fortress’ broke the printers (note the spin injected by bad-mouthing words, just as he later refers to the London markets as ‘a kind of confidence trick’). The result, Hutton argues, was a weakening of democracy, colossal social costs and few discernible gains. It is possible for one’s sense of things to be more nuanced than that. I remember, just after the 1979 election, meeting Alan Fisher of Nupe, who had played the starring role in the Winter of Discontent. ‘A lot of people think,’ he said, with unmistakable pride at being so important, ‘that we really brought down the Labour Government.’ But didn’t he think that thus electing Thatcher was a mistake? ‘Not really, nothing could be worse than Callaghan’s lot.’ Thus the genus of union baron, c. 1979. One may remember, too, that not far into the miners’ strike, Scargill spurned a not-bad offer, just as the printers at Wapping did. As for benefits, well there are some. The country will never again go cold as a result of miners’ strikes, printers will never again help to close down newspapers for a year at a time, or dictate what we can and cannot read. Beyond that, it is surely of some moment that the sad state of British industrial relations used constantly to be cited by foreigners as a reason why they could not do business with us. Nowadays no one says it, and foreigners like BMW, Nissan, Honda and Samsung are all eagerly investing here. Hutton may still be right that this was bought at too high a price, but you have to allow that not a few foreigners take a Thatcher’s-eye view of the situation.

Hutton inveighs against the asset-stripping culture engendered by British short-termism, taking Hanson as his particular target. It is compelling stuff: Hanson demands a 20 per cent rate of return from all his acquisitions, which generally means winding up the R & D budget, cutting investment, training programmes and the like, and running the company into the ground as a cash cow. This is what Hanson did to Berec, maker of Ever Ready batteries, which he took over in 1982. He sold off the company’s European division to its main competitor, Duracell, pushed up prices, surrendered market share and after ten years sold the remaining shell of a company on to another competitor, who found the company ‘a number of years behind the times ... a business in decline ... the whole infrastructure was pretty thin’. This, too, was nothing but vandalism, which was presumably why, like speaking unto like, especially after a hefty contribution to Tory funds, Thatcher ennobled Hanson. It makes you wonder what Glenda Jackson thought she was doing, lending him a Labour veneer of approval in those television ads. But then you have to wonder what Labour was doing in general all this time: putting up an unelectable leader in 1983, putting up another one in 1987, keeping him on as a proven loser in 1992, and then picking a man known to have a weak heart, who died within two years. Had Labour ditched Kinnock for Smith after 1987, Labour would have won in 1992 and, assuming that the ablest candidate had followed Smith, we would now have Prime Minister Cook.

Instead we have paid the wages of Thatcherism: not sin but, Hutton suggests, the 30-30-40 society: 30 per cent disadvantaged; 30 per cent marginalised and insecure; and only 40 per cent in secure jobs. One can quibble about these categories; the first 30 per cent includes all non-working adults, which, if you think of it, will actually include quite a number of well-off early-retired and middle-class non-working housewives. Similar niggles exist over the other categories, but overall his picture holds. More and more people enjoy no protection or security in their working lives. Of the five million who work part-time, 80 per cent are women and the two million who work for fewer than 16 hours a week have no right to employment protection. And 70 per cent of all new part-time jobs are now for 16 hours a week or fewer.

Typically, though, Hutton spoils his case by wanting to throw in the kitchen sink. He returns repeatedly to the divorce rate. ‘Britain has the highest divorce rate and the most deregulated labour market in Europe, and these two facts are closely related,’ he writes. He also argues that the high rate of return on British equities, or short-termism, causes slow growth, causes unemployment, causes divorce; thus ‘the disintegration of family life ... may seem far removed from London’s financial markets’, but is ‘as linked to them as remote shocks are to the epicentre of an earthquake’. This betrays not just his desire to explain everything, but a considerable sociological naivety. Does he not know that our divorce rate was the highest even when our labour market was not deregulated, or that divorce rises with women’s participation in the labour market, where we also have the highest percentage? Has he not considered the obvious differences with Catholic Europe? Or the fact that religious practice in general inhibits divorce and that we have the lowest rate of religious practice in Europe?

Hutton’s prescription for this sea of woes is that we must start again, get a written constitution, adopt PR, make everyone citizens not subjects, have a Lib-Lab pact, give companies and trade unions new constitutions all round; oh yes, and cut consumption and increase investment. One can only observe that his political reforms have little to do with his real, economic prescriptions: that currently the cut in consumption to finance export-led growth – just what he wants – is fiendishly unpopular, a fact which Labour is milking for all it’s worth; and that Hutton’s nerve fails him as he approaches the subject of the monarchy. Although his chapter on that is called ‘The Republican Opportunity’, he suddenly notes that ‘too many generations of Britains [sic] have fought and died for King and Country for this unifying symbol to be thrown aside lightly.’ So, instead, we need to ‘place the monarchy in a constitutional role within a wider settlement’. All of which, it turns out, is for the monarchy’s benefit; ‘it is difficult to see how renewed legitimacy for the dynasty can be achieved without a new constitutional settlement.’ You get the idea that Hutton would like to relegate the monarchy to a sort of royal theme park but can’t quite muster up the nerve to say so.

Actually, his real solution is hidden away in another section where he sorts out the world at large: ‘What the world needs is to reinvent ... Bretton Woods ... The world’s financial markets need to be brought to heel.’ Japan and America have to be made to behave: ‘forcing them to manage a fixed-exchange relationship between the dollar and the yen ... may be the only way of compelling them to make the necessary adjustments.’ There is, of course, no prospect of Hutton or anyone else forcing, compelling or bringing to heel either the world’s markets or its two most powerful nations, but he does mention the key fact that over the Eighties the US ran a cumulative current account deficit of $893 billion. Taken together with the huge outflow of US mutual funds and the unwillingness of other countries to fund US deficits any more, this unsustainable tendency – in 1994 the US trade deficit zoomed to over $166 billion – means that we are moving towards a real crunch between the world’s great trading blocs. The US-Japan stand-off is already almost complete, and now the US and China have begun a full-scale trade war. All we need is for the new Republican majority to start another Reagan-style budget deficit binge for everything to go out of control.

Should this happen, Britain’s only hope of security will be to bolt within a federal Europe, accepting a common currency and all the rest of it, rather than stay outside in the cold. In the long run the same logic will apply, even without a trade war. Which is really the point. Labour have proved hopeless at defeating the old Conservative Establishment, which is why Hutton’s reform proposals have such a forlorn and unconfident ring. The only way that Establishment is going to be beaten is for it to be overtaken and swallowed up by the forces of European social-market democracy. This is also the only way that British business and labour are going to change their behaviour in the ways Hutton wants. There are signs that Labour is edging towards this inevitable conclusion but it doesn’t feel it can say so any more than Hutton does. Which, if you think of it, is because of the state they’re in.

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Letters

Vol. 17 No. 9 · 11 May 1995

R.W. Johnson’s review of Will Hutton’s book, The State We’re In (LRB, 9 March), shows how ill-informed he and Mr Hutton are about our ownership of British Ever Ready. Johnson says that having bought Ever Ready in 1982 we sold its European division to its main competitor Duracell, pushed up prices, surrendered market share and after ten years sold the remaining shell of a company to another competitor. This was alleged to be ‘nothing but vandalism’. The facts are these. We acquired British Ever Ready in 1982 for £95 million, at a time when its market share was in free fall and it had seen its profits halve in a five-year period. We and the management of Ever Ready rescued the company and its capacity to continue as the only significant UK producer of dry-cell batteries. We did indeed sell the overseas loss-makers, which were rapidly bringing the company towards bankruptcy.

Ever Ready was eventually sold to Ralston Purina, the owner of the Eveready battery business in the United States, for £132 million (hardly the price for a ‘shell’), thus providing a vastly improved business with another good home. The business was hardly ‘in decline’ or ‘behind the times’. The reference to a ‘pretty thin infrastructure’ is more a comment on Ralston’s own management structure than that of Ever Ready.

The rescue of Ever Ready gave improved value to Hanson shareholders, who not only retained the £132 million proceeds but also remained owners of two other first-class businesses – Eveready South Africa and Crabtree, which were both part of the Ever Ready business acquired in 1982. These two businesses alone now earn three times the pretax profits of the whole of British Ever Ready at the time we acquired it.

Martin Taylor
Vice-Chairman, Hanson

Vol. 17 No. 6 · 23 March 1995

Enjoyed R.W. Johnson’s piece on Will Hutton’s phillipic The State We’re in (LRB, 9 March). There’s a splendid deadpan joke in the way Cape have priced this searing indictment of economic wishful thinking at a rosetinted £16.99. Compare Heinemann flogging Michael Ridpath’s thriller Free to Trade for a macho, no-bullshit £10, rather than a moron-enticing £9.99.

Anthony Walter
London N16

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