April 14, 2003
by Irwin Stelzer
He knows the words, but he doesn’t quite have the tune. Gordon Brown is a close student of the American economic achievement, and a man who understands that without rapid economic growth the funds for his cherished expansion of the public service sector just won’t be available.
So it comes as no surprise that in his budget statement he says he aims to close the gap between productivity growth in America and the United Kingdom. Brown’s Britain, he promises, “will learn from American competition and enterprise. . . .” And, true to his word, the chancellor has fought to strengthen laws that prevent businessmen from conspiring to steal from consumers by engaging in cartel behavior.
But Brown seems to have learned too much from Franklin Roosevelt and too little from Jack Kennedy and Ronald Reagan. FDR followed the advice of an adviser, who promised, “We shall tax and tax, and spend and spend, and elect and elect.” The result was a prolonged depression that ended only when America entered World War II. Kennedy and Reagan took the road less travelled by, cut taxes, and set in train periods of extended and rapid growth.
Brown believes he can more than offset the depressing effects of his multiple tax increases by increasing public spending even more rapidly. After all, he points out, President Bush also thinks a budget deficit is appropriate at this stage of the business cycle. But there is a difference. Brown’s deficit results from a tax increase that transfers resources from the private sector to the public sector and its notoriously Luddite and inefficient trade unions. America’s deficit will result from a tax cut that puts more money into the hands of consumers to spend in the private sector. The ink in both countries may be red, but the similarity stops there. Not for Brown the teaching of leading experts such as Princeton’s William Baumol and his colleagues: “Restraining public expenditure,” they conclude, “can make private investment easier and more rewarding financially.”
Nor is Brown’s comparison between the portion of GDP consumed by the U.S. and UK public sectors to be taken at face value. The United States spends a much larger portion of its GDP on defense than does the UK—not a bad thing for the world, as recent events in Kosovo and Iraq so clearly demonstrate. That allows others to spend less on defense. Although Britain is the least offensive of the world’s free riders, comparisons of its public sector spending with that of the United States are not meaningful unless adjusted to account for those differences in defense spending.
Still, his inapt comparisons with the United States aside, Brown has reason to be proud of his macroeconomic achievements. Britain’s economic growth rate is higher, its unemployment and inflation rates are lower, its fiscal house is tidier, and its prospects better than other European economies, in no small part due to his policies.
If only he had really imbibed the American experience when devising his microeconomic policy. The chancellor sees a gap, and feels called upon to act. Not for him Ronald Reagan’s wise “Don’t just do something, stand there.” Not enough entrepreneurship? Let’s have more tax credits. Entrepreneurs are unwilling to locate business in the regions in which the chancellor wants them to locate? Still more tax credits and some regional planning. Not enough research in areas the chancellor deems important? “Improve the definition” of research qualifying for special tax treatment. Too many poor people? Let’s take more money from high earners and funnel it to single moms, “young offenders,” and low-income school-leavers. All of these programs, of course, favor those who can best navigate the sea of paper created by the tax code, and increase the tax burden on the successful, reducing their incentive to work and take risks.
That’s just not what American-style entrepreneurship is all about. It is about free spirits deciding what sort of business will meet consumers’ needs. It is about businessmen, large and small, deciding where to locate their offices and factories, without the aid of a regional planning council. It is about getting rich, with “social justice” flowing from private philanthropy of the sort that all-invasive government in Britain has virtually eliminated.
Most of all, it is about individual freedom. It is not possible to breed a nation of men and women who are told that they are too ill-informed to choose their own doctors, too self-centered or lacking in knowledge to decide where to send their kids to school, too selfish to be left with large amounts of their earnings—and then expect those same men and women to become risk-taking, innovating entrepreneurs.
And it is not possible to construct a tax system, the main object of which is to level down, and still retain sufficient incentives for potential small businessmen to risk their life savings in pursuit of their special dreams. “Fairness,” the chancellor told parliament and the nation, is “too often undervalued in the U.S.A.” Not so. It is far “fairer” to foster rapid increases in incomes of low earners by encouraging still more rapid increases at the top end of the income scale, than it is teach low earners to concentrate on waiting for the next tax credit or handout.
I started by saying the Brown knows the words about entrepreneurship, but not the tune. Then, by chance, I heard again the wonderful song by Jerry Leiber and Mike Stoller, and wondered if the chancellor even has the words right. “Some cats have it,” they write. “The old prospector’s nose for gold . . . these mysteries one cannot explain. Some cats know. They don’t come on huffin’ and a-puffin’ and a-grabbin’. Some cats know how to take it nice and slow, but if a cat don’t know, he just don’t know.”
Gordon Brown may be what British columnists call a big beast in the political jungle, but he just don’t know how to release the animal spirits that John Maynard Keynes identified as so crucial to an economy’s success.
This column originally appeared in London’s Sunday Times on April 13, 2003.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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