Tory small state morally bankrupt

Limited government ruined the economy, but it remains the only language the Conservatives speak- Labour need to go left to win

By Guy Sewell

In the past six months, not only have the Conservatives hidden their strategically weak position, they have managed to project the criticisms that they deserve onto Labour. The Conservatives argue that the economic chaos we are in is the result of Big Government. In fact, the opposite is true.

The reason for the crisis was not that the state was too powerful, but that it was too weak. In the three decades since 1970, regulations on finance were relaxed, markets were unleashed, and taxes were cut. During this period the debate over economic policy became dominated by the belief that if self interested individuals are permitted to operate in a free market without government interference and regulation, and without worrying about other members of the community, the resulting free market will create an economic promised land.

However, the failure of this market fundamentalism has become all too clear during the past two years. Economists have stood by and watched as self correcting markets, rational expectations and efficient markets hypothesis, have all proved defective

After the collapse of the Lehman Brothers empire, credit lines dried up and confidence disappeared. Output and trade contracted at rates last seen in the 1930’s. The State  responded by cutting interest rates to historically low levels, loosening fiscal policy, and pumping new money into the banking system through quantitative easing. Credit creation by the State compensated for credit rationing by the Banks, with spending by the State filling the gap left by the fall in private spending. By March 2009, there were signs that the policy was working. The immediate threat of a 1930’s style slump had passed. While disaster has been temporarily averted, cutting back too early could drive the economy into a depression. Conservative economic plans promoting this have the potential to push the British economy into an irreversible spiral of decline.

It was the deregulation of financial markets advocated by the Right that allowed Banks to escape the prudent state controls on there activities that caused the crisis. This is why the Conservative position is so weak. The need for a Social Democracy has never been more apparent. Polls continue to show strong majorities for greater redistribution, equality and public intervention, as well as a halt to privatisation. The mess we are in has caused by a cowardly State giving free reign to a collection of reckless Financers. Only a newly empowered State can take back control.

The question one must ask now is why has Labour been so timid in its response to the Conservatives flawed assault? Labour’s first problem is that it is not fully justified in an attack on market fundamentalism, as from 1997 to 2007 it was complicit in the excesses of the Market. However, if this was Labour’s only failure it could be easily cured, by admitting its compliance in the crisis and proving its new belief in a political system that has averted economic catastrophe.

Labour’s other failure has been a complete distortion of the public’s perception of a powerful State. The State should be held high as the champion of rationality and civil liberties in the face of an amoral and dangerously volatile Market. It should be the vanguard of universal education and healthcare in an ever diversifying society. But under Labour, the opposite has happened. Big Government has become associated with spinelessly appeasing Bankers, while brazenly pushing through attacks on our liberty through DNA testing and I.D cards, much to the horror the majority of the population. Labour has made a political system designed to safeguard and promote our liberty look hopelessly authoritarian.

With public anger seething at the financial world, it is still possible for Labour to grasp the Social Democratic movement. What Labour needs is to admit its failings over the past 12 years and become the Big Government it always should have been. Evidence of this can be found in last Wednesdays Queen’s speech, promising education reform, progressive taxation and greater economic intervention. One can only hope that Labour will act further and have the courage to attack the failing economic orthodoxy of the past three decades.