Doing something

Barry Supple

  • Getting and Spending: Public Expenditure, Employment and Inflation by Leo Pliatzky
    Blackwell, 232 pp, £12.00, March 1982, ISBN 0 631 12907 3
  • Inside the Treasury by Joel Barnett
    Deutsch, 200 pp, £8.95, February 1982, ISBN 0 233 97394 X
  • Public Expenditure and Social Policy: An Examination of Social Spending and Social Priorities edited by Alan Walker
    Heinemann, 212 pp, £7.50, March 1982, ISBN 0 435 82906 8

In April 1935, with the staple industries stagnating and over two million people out of work, Harold Macmillan rose in the Commons to press for a radical policy of industrial reconstruction and public investment. What, he asked, were the arguments against public capital expenditure? ‘What is the case of the Treasury, the people who really govern England from the Box that is outside?’ His answer was that the Treasury was immobilised by fear of ‘artificial’ expansion, a consequent collapse and an increased burden of debt. As an answer it hardly did justice to the agile complexity of the Treasury’s slightly precarious commitment to economic and fiscal orthodoxy. But it adequately reflected what has since become the thinking man’s prejudice on the subject: that an increase in public expenditure (without a matching increase in taxes) could only have ameliorated Britain’s economic misery between the wars; and that the principal obstacles to a Keynesian (or Lloyd-Georgian or Mosleyite) recovery programme were the prejudice and ignorance of the Treasury knights, who, again in Macmillan’s words, ‘see the error which may be committed by doing something, and therefore...say “let us commit the crowning error of not doing anything at all.” ’

Of course, even in 1935 public expenditure was hardly a negligible element in the nation’s transactions. It accounted for some 25 percent of the national income. But ‘doing something’ was much more a characteristic of later years – of rearmament, war, peacetime military expenditure, burgeoning welfare and social programmes, and radical (or at least generous) industrial policies. By the time Macmillan had attained his political apotheosis, public expenditure was equivalent to about one-third of gross domestic product. On a fairly stringent definition of terms, it reached 40 per cent in the late 1960s and 45 per cent or more in the mid-1970s, receding and then rebounding after each spurt. As the brave new world of the 1980s unfolded, although the 1970s seemed to mark a break in the upward trend, the proportion almost touched 45 per cent again – now fuelled by the unemployment and social security benefits of a profoundly depressed economy. Once more the compassionate proponents of increased expenditure and new ‘industrial strategies’ cry ‘forward!’ Once more the defenders of financial rectitude and price stability cry ‘back!’ And once more the cry of the lame duck is heard in the land.

Yet, however much the intellectual arguments echo across the gulf of fifty years, the real world has changed too much to be subsumed in a banal comparison. For one thing, the mixed economy – Macmillan’s longed-for middle way – is now well-established: the starting-point and not the goal of economic and social policy. For another, a huge public expenditure, a substantial level of unemployment and a hefty rate of inflation all, perversely, co-exist. Admittedly, the commonly quoted figures exaggerate the state’s direct control over resources, since ‘only’ about 25 per cent of the national income is actually spent by government – the other 20 per cent consisting of transfer payments to recipients of benefits, subsidies and interest. Yet it also has to be remembered that these same figures do not include the expenditure of public corporations and nationalised industries. If they did – as they used to – the proportion of the national income involved would be getting on for two-thirds. Measured in terms of the proportion of the labour force employed by or dependent on public bodies, the flight from capitalism is hardly less headlong. If the Treasury is still guilty of adopting reactionary postures, it embodies that peculiar variety of reaction which accommodates itself to revolutions. In Getting and Spending, Sir Leo Pliatzky has a throw-away line to the effect that in the circumstances of 1979 ‘something around 40 per cent would have been about right as a ceiling on the proportion of GDP going to public expenditure’. And this from a former head of the public expenditure side of the Treasury! Rolling back the frontiers of the state to 40 per cent is hardly the stuff of which Bourbon policies are made.

How has all this come about? What are its implications? Above all, how does it relate to the arrival of those latecomers to the feast of affluence – inflation, unemployment and industrial stagnation? Ostensibly, these are among the topics considered in Getting and Spending, although in justice it has to be said that its substance is primarily devoted to the aggregate growth of that expenditure and to the fascinating recent history of attempts to plan and control it. But even if we make such allowances, the book provides only superficial answers to most of the really important questions. This is partly because Sir Leo is no doubt restrained by the discretion of a former civil servant: but it is also because he ‘explains’ the rise of public expenditure at much too high a level of generality, in terms of broad social aspirations and rather blandly specified political pressures. As a result, the constituent elements in that expenditure are rarely distinguished, and the ‘problem’ is seen as a single accounting, rather than a multiple institutional, one. In addition, he follows the official habit of viewing public expenditure primarily as a question of the control of commitments and projections, rather than as a vehicle for any probing of the fundamental causes of, or needs for, expansion.

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