Some state spending is great but not all of it is

Looking back to the most successful period in British economic history, which was the mixed economy era of 1948-1979 in which the economy grew by an average of 4.5% of GDP per year and over the 32 year period the national debt was reduced from 237% of GDP to only 43%, this period of extraordinary levels of economic growth and debt reduction coincided with vast levels of state investment in infrastructure, social housing, power stations, NHS facilities, the motorway network and countless state operated enterprises. The UK has never again seen economic growth and debt repayment on this scale, ever since Thatcher initiated the neoliberal revolution in 1979 and started slashing government investment and selling off profitable state run enterprises.

Yep, great times. And government expenditure as a percentage of GDP was well under 40% from 1947 through to the late 1960s.

Today it’s 44%.

Looks like there’s another £60 to £100 billion to cut yet then, eh?

23 thoughts on “Some state spending is great but not all of it is”

  1. I’m not sure you can just pluck a number out of the air (or from history) and say that that is the ideal level of state spending. It clearly depends on circumstances.

    Pre 1960s for instance people tended to die within a few years of retirement, the idea that the state would fund a pension for 20 years post retirement plus increasingly expensive healthcare just wasn’t envisaged. And clearly this is going to cost more money.

  2. I think that one of the problems with the advocates for spending today is that there’s really very little that’s useful that the state can add. Even as a “public goods” classic liberal, I can see why building power stations, roads or a telephone network are things that aren’t too ridiculous for government to be involved in. Privatisation improved the services, but most of the improvement was done by just having them, whoever ran them.

    The problem is that the advocates of big state spending don’t really have anything that has the transformative effect of these programmes. It’s Sure Start schemes, arts programmes, high speed rail etc.

    And his example of reducing policing is laughable. Burglary is a fraction of what it was because of the free market, and all those cheap DVD and MP3 players from China. There’s little that’s worth fencing in houses today.

  3. You can’t just pluck sections of history out of context and compare them as if they were dishes of agar jelly. You need to consider vulgar things like demographic profiles within the UK, not to mention the relative positions of other countries in the period.

    Anyone who thinks that the British car industry was in as healthy a position in 1973 as it was in 1950 is a loon. But then we knew that from the fact that he uses the word “neo-liberal”.

  4. If you are a lefty, you *can* just pluck a number out of the air. The actual growth rate was 2.98% compound (with, unsurprisingly significantly faster growth under the Conservatives – 3.46% compared to just 2.64% under Labour).
    The reason why Debt/GDP fell was largely down to effective partial default as the real value of the £ fell by 85% in the period (mostly under the 1974-9 Wilson-Callaghan government during which it fell 58% in just under 6 years)..

  5. Glad John77 has challenged the stats. I would add that 70-79 was the period of Britain’s stagflation (a word the commentator is familiar with, in the context of criticism of the coalition reason for not spending more). It was economic performance then that led to the Thatcher conservative victory in 79.

  6. And how was it this ‘most successful period in British economic history’ led to the IMF being called in to prevent total economic collapse, with 14% interest rates, inflation in the high teens, 98% top tax rate, professionals and the wealthy fleeing abroad, Sterling devaluation and controls, every day a strike day, the dead unburied and rubbish piling up in the streets?

    If this was success, what would failure have been like?

    And was there no economic history before 1948… like the unmixed economy of the Industrial Revolution?

  7. @ JOhn B

    The IMF is part of the vast neoliberal conspiracy. As soon as they see socialist success, they act to snuff it out and lie about it. C’mon, this is leftism 101.

  8. @ Peter S
    British Gas and British Telecom which had statutory monopolies and could charge what they like for whatever service they chose to give you.
    When I was young only a couple of % had telephones installed and a short/shortish local call from a GPO ‘phone box cost the same as a Mars Bar: now I can ‘phone the USA for less..

  9. @ John B
    The standard data table for UK Real GDP starts with 1948 because data on 1939-45 is unreliable and 1946 and 1947 are distorted by the gradual demobilisation of the army conscripts.
    Inflation in 1975 was 24.2%.

  10. IIRC, we had exchange controls in the seventies. Presumably coz we were doing so badly relative to those countries we would like to compare ourselves with.

    My parents bought and apartment in Malaga in about 76, quite literally exchanged a brown envelope with a fellow on Hilton Park motorway services ( Walsall), because of the exchange controls.

  11. @ John B “prevent total economic collapse” not sure it was to prevent “total economic collapse”, more to prevent emergency slashing of state spending, presumably banks thought the government could not pay its loans and so would lend no more. Don’t exaggerate, there’s no need in this case, the record of bad governance stands all on its own ( both main parties culpable).

  12. @ johnny bonk
    OK it was not to prevent total economic collapse, just to avert the risk of the UK openly defaulting on its debts. The last time England did so (which was prior to James VI and I) it ruined the Medicis, so not Total Economic Collapse just ruination of the leading contributor to economic growth in the then known world.
    The IMF loan was not to avoid emergency slashing of state spending – it was to avoid a collapse in international trade as default by the world’s leading trading would have a catastrophic effect. It *required* a majore reduction (“slashing”) of state spending in excess of tax receipts.
    PS My parents were honest.

  13. @john77 “PS My parents were honest.” – i assume u mean “law abiding”.

    I am supposing (may be wrong) that the IMF money was used to pay off some of the govt’s foreign debt, so that the British and other governments could continue to borrow. Yes, there’d have been knock on economic damage in UK and elsewhere if HMG had defaulted, but it was essentially a government debt problem rather than a problem with uk businesses.

  14. which is not to deny that govt debt, govt foreign debt, uk business and uk exports are not all intimately connected.

  15. @ johnny bonk
    You are clearly unaware (and very probably your parents were too) that it was possible to buy “premium dollars” with which to buy overseas investments. Wilson introduced a 25% forfeiture of the premium (difference between market price for premium dollars and the official exchange rate) and I once had a major spat with my employer’s Chief Accountant because he wanted me to value non-UK investments at mid-market price minus 25% of the dollar premium and I reckoned that mid-market price should be minus 12.5% – after a not-very-brief discussion my boss (who was far more intelligent than either of us) decided I should supply both the correct and the wrong answer
    The IMF money was not used to pay off foreign debt: it was used to provide a guarantee for a much larger amount of foreign debt that Wilson had accumulated

  16. “increasingly expensive healthcare just wasn’t envisaged”

    The calculations for the NHS initially assumed that spending would actually *decrease* with time, because of course everyone would be healthier, but they quickly realised their error, with results we see here today.

  17. “IIRC, we had exchange controls in the seventies. Presumably coz we were doing so badly relative to those countries we would like to compare ourselves with.”

    Exchange controls were imposed at the outbreak of war, and were only finally removed by Thatcher’s government in 1979, at which point Britain could finally begin to trade properly again. Up to then, for 30 years after the end of the war, even small transactions abroad required non-trivial paperwork (barring brown paper envelopes). It was a good way of hobbling an economy historically based on large-scale international trade. Naturally the politicians concluded instead that it was failure to join the Common Market that held back the UK economy. Some idiotic Labour shadow chancellor even wanted to re-impose controls during the 1980s!

  18. Tim, you missed a great quote:

    If all private sector activity was “efficient”, there wouldn’t have been over 230,000 bankruptcies since the Coalition government came to power in 2010

    Quite stunning really: the mechanism that makes the private sector more efficient is proof that it doesn’t work.

  19. Admittedly, it was 1983 when I first visited the UK.

    But frankly … it was a hole. And I came from Buffalo, New York … one of the armpits of America.

    I don’t think its’ reasonable to conclude, no matter how out there you are, that Thatcher did that in 4 short years. That sort of ruin took decades of concerted effort.

    I went back to London in 1997 and was shocked at how good it looked. I suppose Blair did all that in the mere 3 weeks he’d been in office at the time?

  20. So, if you want a low tax (sub 40% or whatever) economy, and to have decent growth, and to reduce the National Debt, what you need is a Butskellite economy with exchange controls and lots of nationalised industries.

    Tim is unusually well to the left of me on this one.

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