Microeconomic Reform in Britain

Originally published in 2004 in The Business Economist, volume 35, issue 2. The original publication day is unrecorded.

Ed Balls, Joe Grice and Gus O’Donnell, eds, Macmillan Palgrave, 2004, xiv + 438 pages, £16.99.

From The Business Economist, volume 35, issue 2 (2004).

‘Competition’, ‘enterprise’ and ‘flexibility’ are words that come back time and again in the Treasury’s compendium Microeconomic Reform in Britain, jointly edited by Ed Balls, Joe Grice and Gus O’Donnell, and introduced in a foreword by the Chancellor of the Exchequer, Gordon Brown. For example, “Enterprise in deprived areas” and “Building an enterprise society” are consecutive sub-headings on page 74, and the single word ‘Enterprise’ is a sub-heading on both page 104 and page 118, while page 156 identifies “Promotion of enterprise to create jobs across all ages and groups” as a priority in European economic reform. After seven years of Labour government, this emphasis says a lot about the difference between Old and New labour. It seems incredible nowadays that Old Labour kept Clause Four, on the virtues of social ownership of the means of production, until the early 1990s.

The New Labour project under Blair and Brown is revolutionary in the best sense, in that it has overturned a failed set of beliefs and replaced it by something better. Brown’s mantra of efficiency with fairness undoubtedly commands the respect of most British economists, including economists in business. Microeconomic Reform in Britain is most welcome. It brings together in one volume clear and authoritative descriptions of policies which try to harness the efficiency-promoting incentives of the market economy, to modify market outcomes where these can be deemed to be socially unsatisfactory (because of externalities) and to distribute the output of a predominantly private sector economy more fairly. The authors are ideally equipped for this task. Not only have they been close to microeconomic policy-making for many years, but also they have an impressive acquaintance with the academic literature. Views may differ on the desirability of a national minimum wage, but the six pages on the topic in Annex 10.2 are an artful blend of the latest theory and the most up-to-date evidence.

But there is something missing, and that is an explanation for the shift in left-of-centre thinking from its anti-market, anti-enterprise bias as late as the 1980s to the pro-market, pro-enterprise rhetoric today. The truth is that many of the policies pursued under New Labour were started during the preceding 18 years of Conservative rule and that they are being copied because they were successful. Two obvious examples are the Private Finance Initiative and labour market reforms to encourage increased participation. Labour force participation has increased strongly, but the credit is due to Peter Lilley’s introduction of the Jobseeker’s Allowance as well as Gordon Brown’s New Deal. More could also have been said about the growing chorus of complaints from business about the costs of extra regulation since 1997 and the apparent decline in public sector productivity as the government has thrown money at health and education.

Professor Tim Congdon Lombard Street Research

Archived source: 2004-12-15 website capture.