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Did I get it wrong

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Did I get it wrong

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Did I get it wrong?
The decade since The State We're In was published has seen crucial
changes. So will the next one

Will Hutton
Sunday January 9, 2005
The Observer

Ten years ago tomorrow, The State We're In was published. Overnight, I changed from being
another economics writer to someone the Daily Telegraph described as the most dangerous
man in Britain, so helping to ratchet up the sales of an improbable bestseller. But how does
the book stack up in 2005?
For conservatives, my crime was that I had written a too plausible but none the less wrong
critique of what Mrs Thatcher had done to Britain. The danger was that it might persuade the
New Labour leadership and worse - many voters - into wanting something other than the pure
milk of the free market.

Britain had developed a fractured '30/30/40'society - 30 per cent disadvantaged and
marginalised; 30 per cent insecure; 40 per cent privileged. This was created by a capitalism
preoccupied with short-term financial gains and the next deal rather than building businesses
and husbanding workforces.

Such an arrangement was sanctioned by an amoral conservative political, business and
financial class that deployed the power of the monarchical British state and the accompanying
icons of gentlemanly prestige to privilege markets and denigrate a shared conception of the
public realm. But the annoying conclusion the book drew (for both the old left and the new
right ) was not to despair of capitalism, but rather, recognising its fecundity and power, to
propose its reform around so-called 'stakeholder' principles. This involved incorporating
values of inclusion, commitment and fairness in the bedrock of capitalism, which would be
further entrenched by constitutional reform to give Britain a less monarchical democracy and
a better chance of expressing the public interest.

Rereading the book with some trepidation last week, I found myself as convinced about this
core analysis as ever. The two chapters on how our financial system betrays business still
stand (despite some small improvement) and I remain a champion of stakeholder capitalism
together with a vital public realm as a means of achieving better economic performance and a
fairer society.

But over 10 years, the world has inevitably moved on. Some of the darker concerns of The
State We're In have not happened, in part because New Labour, although fashionably
derided, has stemmed and reversed some of the adverse social trends, and in part because
some of the assumptions I made about what was economically sustainable and how
capitalism worked in an era of globalisation have proved wrong.

I thought that British consumers, saturated with debt from the 1980s, could hardly rescue the
British economy again and, even if they did, that our export earners were so weakened by
Thatcherism that if the economy grew at any meaningful rate, Britain would be left with a huge
trade deficit. Companies could only find a way out by being offering ever meaner and
insecure work. I began the book six months after Britain's exit from the ERM, when, without a
decisive change of course, the best bet seemed more of the previous 20 years of economic
decline.

In that sense, the book was very much a child of its time. What I couldn't anticipate was the
extent to which globalisation, worldwide low inflation induced by rock-bottom commodity
prices and a glut of manufactured goods and a new approach to economic management
instituted by Norman Lamont and developed by Gordon Brown changed Britain's economic
options.

In this new world of low inflation and interest rates, Britain's consumers could rescue the
economy with another credit boom, and globalised financial markets would finance my correct
prediction of the resulting trade deficit. Moreover, globalisation would offer unexpected parts
of the British economy - its universities, its media, its software industry, its accountancy and
consultancy firms and even its traditional multinationals - opportunities that could not be seen
in 1994. The result has been unparalleled growth in the economy and jobs and a rising tax
base that has financed a better NHS and primary-school system.

It has needed a two-term Labour government to reorder Britain's spending and tax priorities,
and here is a change that I argued for but could only hope would happen - the rediscovery
that Britain, at core, is a liberal, rather than conservative, society, the explanation of Labour's
continued poll lead, despite the cynicism with which Blair is now regarded. Paradoxically,
Lady Thatcher shattered the already decaying conservative establishment and while Britain's
new elite is by no means New Labour, it is too self-confident to revert to an instinctive
conservativism. The point about the Countryside Alliance, for example, is its weakness rather
than its strength; old associations have gone for ever.

But as I feared in 1995, New Labour has not trusted the possibilities seriously to capitalise
upon the opening, notwithstanding the progress it has made. The Blair/Blunkett wing wants
no truck with Britain's liberal tradition beyond what a limited One Nation Toryism might
concede, although its bias in favour of science, multiculturalism and the environment makes it
a different kind of political animal.

The alliance with Gordon Brown and his strand of New Labour, readier to do business with
the British progressive tradition (though much closer to Blair than many of his supporters
concede), has become ever more uneasy. Unless the two can broker a common position, a
process made difficult by the way the British state concentrates so much power in the Prime
Minister, New Labour risks finding itself in the same broken-backed position as today's Tories.
Britain's unreconstructed state helped do for the Conservative party by focusing so much
power on Thatcher; it could do the same to Labour.

Here The State We're In made a misjudgment I would give a lot to change. If I had made the
case for stakeholding much more around Britain and America's experience - and downplayed
its success in German and Japanese companies, where so much is muddied by other
economic problems - the argument would have been culturally easier to accept. In Built to
Last, James Collins and Jerry Porras showed how 17 of America's best and most innovative
companies had been constructed on stakeholder principles - organisational purpose, long-
term commitment and worker engagement. It has been the US's bestselling business book.

Presented in those terms, Blair might have been attached to stakeholding for longer than the
10 days he flirted with it after his Singapore speech in 1996 - and even Brown, so attached to
American enterprise, might have given it more support. But Collins and Porras published Built
to Last when The State We're In was already at the printers.

The economic challenge of the next decade is to create a viable knowledge economy. New
Labour has laid some foundations via its science investment and its strengthening of
universities. It now needs to go further by invigorating the idea of stakeholding and business
building. On this, at least, it could find agreement.

But modern capitalism is an ever moving target; trying to understand it, and then making and
agreeing a compelling case for reform, is bloody difficult. I'm still proud of The State We're In;
I won't make the same mistakes next time - just some new ones.

								
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