Planning the Free Market

Ronald Banks

[Reprinted from Land & Liberty, May, 1965]

THE Conservative and Labour Governments since the war have shown little difference in their fundamental approach to economic policy. Both parties seem convinced that it is only the academic expert who is able to tackle economic affairs with any success, with the result that it has now become fashionable to accept this. On this basis, all initiative is left to the Government of the time, and the skill, ingenuity and resourcefulness of the people are left to stagnate while the Government and its experts work out their formulae.

While one can criticise the Labour and Conservative parties on the strength of the policies pursued while in office, the Liberal Party has to be judged by its own criticism of the policies of the government of the day, and by policy statements made by Liberal spokesmen.

Since the fortunes of the Liberals have revived, they have shown an inclination to embrace fashionable ideas at the expense of principle, and "planning" has become an important word in their vocabulary.

The first welcome signs of a return to basic principles, however slight, appear in a new statement on economic policy by Christopher Layton and Richard Lamb.[1] It must first be said that the document contains inconsistencies; largely attributable, it would appear, to an over-reliance on the "expert" and on the role a government is expected to play in a "new economy." However, there are sections - on protection, the market economy and the price mechanism - that are extremely well argued, and it is during the discussion of such subjects that the authors are at their happiest.

Tariffs, hidden subsidies, quotas and other protective devices are attacked on a number of counts, not least as the bastion of monopolies. High tariffs are criticised as preventing investment in new machinery and capital equipment because businesses can make profits in an easy home market with out-of-date factories and plant. Distortion of investment is also laid at the door of protection in that declining but protected industries survive longer than they otherwise would, and thus lock up precious capital and labour resources.

The authors propose a reduction of tariffs, together with stricter legislation against monopolies and restrictive practices, but the term used is "reduction of tariffs" and not "free trade" and the reason for mis is soon apparent. It is stated that "all tariffs should be reviewed and used as a positive instrument of Government economic planning." Free trade, of course, cannot be used as a planning instrument. Free trade is in itself the antithesis of planning. With tariffs, decisions are in the hands of the "experts"; with free trade decisions rest with the whole population. To retain or "review" tariffs for "planning purposes" is to give away the argument for both free trade and the free economy.

A similar kind of reasoning is to be found later in the booklet, when the nationalised industries come under discussion. To quote from the document:

"It is high time the price mechanism, which is the best instrument we have for gauging the relative efficiency of different sectors of the economy, and the best means of telling us where to invest our resources, was properly used, here as well as in the private sector. This does not mean abandoning planning or ruling out all social considerations in public services. But it does mean making use of the price mechanism to tell us where the nation's money is most economically invested, and planning accordingly. It also means giving a clear directive to the nationalised industries that they must compete and survive on a profitable, commercial basis, with the state providing a conscious, direct subsidy for any particular social objectives which it considers to be necessary."

Except for the reference to planning, which seems irrelevant except to social objectives, the paragraph quoted could appear with merit in any textbook on free enterprise economics. From this point on, however, economic planning is the by-word, although it is apparent that the term "planning" is given many different meanings.

Stress is laid on the importance of overall objectives for economic growth set by the Government, together with Government help to industry to plan for the future. This proposal is hardly consistent with the authors' previous proposal to allow market forces to determine where and how resources should be used; the authors seem to be unaware of the effects that their free market proposals would have on industry and the economy generally should they be implemented. For instance, a reduction of tariffs, legislation against monopolies and a really free market economy would all combine to produce naturally the right conditions for economic growth. There would be no cushioning from a protected home market, and this would stir businessmen to greater efficiency and more selective investment. The skill and ingenuity that exists in this country would be mobilised and utilised without Government planning.

The authors also propose new planning instruments to stimulate exports and investment in the "right place," although their other free market economy proposals would serve far better than government intervention. Their apparent lack of faith in the workings of real Liberal principles looks like lip service without conviction.

On the subject of housing they recognise that previous intervention by the state has caused imbalance and distortion, and that the Government should help to redress the imbalance. Yet, instead of proposing the removal of obstacles to increased home ownership (of which land monopoly is one) they propose a plan that will cause even greater distortion of the housing market - that of the Government providing substantial tax reliefs for entrepreneurs who build houses below a certain rent and above a certain standard!

The reference to land reform above will probably prompt a question about the Liberal policy of land-value taxation. Unfortunately, there is no mention of it. It is even more disheartening when one remembers that one of the authors recently wrote a booklet on site-value rating and extolled its virtues.[2] It appears that, in common with most modern economists, our authors believe that land has nothing to do with economics!

NOTES

1. The Morning After by Christopher Layton and Richard Lamb. New Directions No. 10. (Liberal Publication Department)
2. Make Rates Fair by Richard Lamb and Colin Clark. New Directions No. 9, (Liberal Publications Department)