I was walking with my 23-year-old daughter on London's South Bank the other day when she asked me whether I had ever lived in a "golden age." I immediately recalled the 1960s, when all the world (and I) was young and full of vivid colours and beautiful people.
But then I remembered my studies as an economics undergraduate in the 1960s. These were dominated by the travails of the British economy: big balance of payments deficits, sterling crises, GDP per head below that of most countries in western Europe and falling back on most social indicators too. A little later, when I'd completed my studies and was attending conferences abroad as a jobbing economist, I always found myself apologising for Britain, and trying to explain what had gone wrong.
My daughter was waiting for an answer. I looked around. We were standing by the Globe, near Tate Modern, looking over the river at St Paul's and the gherkin. London was alive with colour; the embankment was full of men, women and children of every race, lively, happy and apparently prosperous. I thought of the international conferences I now attend, where people ask me how Britain has done it; why it is no longer "the sick man of Europe," why it is Italy or France that now have that dubious honour. So I said: well, perhaps the golden age is now.
Those critical of the Blair/Brown government, and of the Thatcher/Major governments before them, will find this both baffling and complacent. They will point to the big rise in inequality since the 1960s. They will draw attention to the recent Unicef report showing that British children are still at or near the bottom of various social league tables. They will note that Britain still has a big balance of payments deficit. And they will point to the horrors and blunders of Iraq.
And yet and yet. It is not just London where there is a spring in the step. Go to any British city—Edinburgh, Cardiff, Liverpool, Manchester, even Belfast—and you will find the same. The high streets are bustling; cranes are everywhere. And this is not just a superficial impression: it is borne out by the figures. Britain is now richer (in terms of GDP per head) than any of the major European countries, as well as Canada and Japan. Britons are healthier than ever—over the last 20 years, life expectancy has been increasing at the rate of three months every year—and better educated: 35 per cent of the relevant age group goes to university, compared to 6 per cent in the 1960s.
Even the Unicef report is more positive if one digs beneath the headlines. Although Britain falls down in terms of relative child poverty because of its high inequality, it does well in absolute terms: the affluence of households with children is in the top third of the league tables, above all the big European countries and not far from those models of social democracy, Sweden and Denmark. Although infant mortality and the incidence of low birth weight are relatively high compared with other European countries, the number of children's deaths from accidents and injuries (quite a good indicator of the quality of a child's environment) is the second lowest, below only Sweden. In terms of the reading, mathematical and scientific literacy of 15 year olds, Britain is well within the top half of the OECD, again above all the major European countries—and this time above Sweden.
And the welfare state is far improved on the postwar years. More patients are being treated on the NHS, faster and more effectively, than ever before. A minimum wage has been introduced at a level close to other EU countries—without damaging employment. The child trust fund (which I had a hand in establishing) is a step towards a society where everybody can participate in asset-owning and the security that goes with it. Even the pension system ensures that most British pensioners no longer live in poverty—unlike the 1960s, when they were by far the largest group below the poverty line.
New Labour politicians talk not about economic growth or social justice, but growth and justice. In doing so, they appear to be denying something many economists have historically regarded as a fundamental truth: that choices have to be made between justice and fairness on one hand, and economic growth and efficiency on the other. The government's record raises the question: have they succeeded in defying the trade-off? Put more broadly, have Gordon Brown and Tony Blair developed an Anglo-social model that can be set alongside the continental European social models much loved by some welfare state theorists, and one that in key respects might perform better?
Probably the most useful classification of social models is that of two Austrian theorists, Karl Aiginger and Alois Guger. They identified three spectrums along which models can range: the balance of responsibility between state and individual; the extent of formal and informal regulation, especially in the labour market; and the extent and form of redistribution. Using these, we can identify two extremes: what we might call the liberal and the solidarist social model.
The liberal model views individuals as autonomous agents, responsible for their own actions. They are on their own in most situations, with state help provided only in times of distress. All markets, including the labour market, are unregulated, leading to high employment but also poor working conditions, long hours and big differences in pay. Redistribution is minimal, with low, means-tested benefits. There may be substantial poverty and inequality, but also (since people have to get jobs to live) low unemployment.
In the solidarist model, individuals are viewed as products of society, with relatively little opportunity or capacity for freedom of action—the victims, not the masters, of circumstance. So the state bears much of the responsibility for the factors that affect people's welfare. All markets, especially the labour market, are heavily regulated. Redistribution takes the form primarily of social insurance, with generous, non-means tested support for those not in work. Although all this reduces poverty and inequality, it may have a detrimental effect on incentives to work, and ultimately on economic growth.
Britain is certainly closer to the liberal model than the solidaristic one. However, even historically, in large areas of social policy the perception of the British welfare state as a triumph of individualism over solidarity does not hold up. Look at the NHS, free at the point of use and funded from general taxation, or the provision of universal child benefit. And Britain has more labour protection than the liberal model usually allows, including many rights for employees (as I know to my cost when trying to get rid of incompetent university staff).
Moreover, the development of the Anglo-social model under Labour has increased social protection and redistribution without stifling economic growth. In specific areas, the government has developed a set of policies that meet both equity and efficiency objectives. Tax credits, whatever their individual travails (see William Davies, Prospect June 2007), have helped reduce the poverty traps which reduced the incentive to work for lower-paid workers, and by combining the credits with a minimum wage it is harder for bad employers to exploit the system. The introduction of university tuition fees in England not only removes an unjust middle-class subsidy, it also generates more resources for higher education and stimulates universities to provide a better service to their students, and does this without discouraging applications.
Another policy that, perhaps surprisingly, is likely to promote equity as well as efficiency is the introduction of parental and patient choice and competition between schools and hospitals. Although the tax funding of education and healthcare removes one source of inequity in these areas, others remain, especially when there is no choice of school or hospital and resources are allocated by bureaucratic fiat. Then the middle classes are triply favoured: by using their loud voices and sharp elbows they can manoeuvre the bureaucracies to serve their ends; they can buy houses in the relevant catchment areas; and, if both of those fail, they can go private. Offering choice within the public arena thus extends to the less well off a privilege previously the preserve of the better off. It is small wonder that, as both the audit commission and the British Social Attitudes survey have shown, although all groups favour extending choice in public services, it is the less well off who are most in favour of choice.
Of course, many problems remain. The very poor remain very poor; the very rich very rich. The economy has difficulties with productivity and exports. The administration of tax credits needs to be sorted out; choice and competition policies have to be properly designed so as to avoid cream-skimming. And there are areas where the Anglo-social model could be extended: more congestion charging, patients with long-term conditions holding their own budgets for NHS care, education vouchers that discriminate in favour of children from poorer families. So there is much for a Gordon Brown government—and its successors—to do.
Even if David Cameron were to win the next election, he has shown no appetite for unwinding the Anglo-social model. The Tories have said they will keep the minimum wage, tax credits, the funding of public services from general taxation, choice and competition in healthcare and education, and commitments to poverty reduction. The Anglo-social model not only seems to be delivering the goods; it may also be delivering political consensus. A golden age indeed.
