Blair’s economic record

In: Uncategorized

15 May 2007

This week’s Fund Strategy included the following comment by me on Blair’s economic record.

It is hard to separate Tony Blair’s economic legacy from that of Gordon Brown. Both have played a key role in developing a narrow-minded approach to economic policy making over the past decade. And both have enjoyed considerable luck in being in the right place at the right time.

A paper by Professor John Van Reenen, director of the Centre for Economic Performance at the London School of Economics, is a useful starting point to examine New Labour’s record. His most astute argument is that the public seems to take relative prosperity for granted. Even though the economy has grown for 15 years continuously the public is likely to attribute this record to other factors. These include Margaret Thatcher’s legacy, the independence of the Bank of England and cheap Chinese imports.

Van Reenen does not fully appreciate the irony of attributing economic success to the Bank. One of New Labour’s first acts in government was to give it independence. Its goal was an elitist and anti-democratic one: to insulate the Bank from politics. Yet it has also meant that the public seems keener to give credit for economic success to the Bank rather than the government.

The public is also right to attribute economic stability to broader factors. New Labour is lucky to have been in government in the years following the end of the Cold War. The defeat of the left has given governments world-wide more room for manoeuvre in dealing with economic problems. That is why the “Great Moderation” is a global rather than a peculiarly British experience.

Labour’s pursuit of “tax and spend” is another important development. Blair’s government has increased taxation as a share of national income while raising spending on public services.

But, contrary to Van Reenen’s argument, such spending does not conform to the traditional left wing model. For example, much of Labour’s increased spending on the National Health Service has gone to “health promotion” rather than treating the sick. What this means is trying to promote what it regards as “responsible” personal behaviour. This involves, among other things, hectoring people about what they drink and eat, on whether they smoke and on safe sex. New Labour’s economic policy has helped turn the NHS into a new priesthood, which enforces a particularly puritanical morality.

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