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The Way of the World

Modern Capitalism: The Changing Balance of Public and Private Power

by Andrew Shonfield
Oxford, 456 pp., $10.50

Every now and then, that overworked encomium “a major contribution” imposes itself upon the reviewer of a work on current affairs. In the case of Mr. Andrew Shonfield’s study of economic planning in the Western world since 1945, the author’s distinction is of help in overcoming one’s initial reluctance to employ a tired cliché. His vantage-point—he is Director of Studies at the Royal Institute of International Affairs—is an unusual one for a writer on economics, but then Mr. Shonfield is primarily concerned with the record of governments and central banks in Western Europe and North America. For this purpose, access to official information, and the ability to meet the key personalities on equal terms is as important as professional training. Possibly Mr. Shonfield would disclaim any authority beyond that of the “generalist.” There is some evidence that theoretical economics is not his forte, a handicap he shares with the reviewer. But in an “institutional” study this hardly matters. What does matter is that Mr. Shonfield has had the courage to write the kind of large-scale survey of current affairs everyone has been waiting for. His book is an important one, not least for the wind of iconoclasm that whistles through its pages: even with respect to Keynesian economics and other sacred cows hitherto in undisturbed possession of their respective pastures.

Before coming to what matters—the theory and practice of economic planning in Western Europe—a preliminary critical remark may be in order. Mr. Shonfield shares with other writers of his persuasion (broadly speaking the Liberal Left in Britain) a tendency to employ Fabian terminology in preference to the conventional nomenclature of officialdom and the academy. Thus he speaks of “capitalism,” and even of “Western capitalist society,” where an American writer would probably use a circumlocution. This makes him sound like a socialist—he is in fact an ardent advocate of governmental planning—though the theoretical assumptions he shares with the Fabian school are not always clearly spelled out. As against Mr. C. A. R. Crosland (currently Minister of Education in the Wilson government) Mr. Shonfield argues, with good reason, that Western industrial society is still “capitalist,” in the sense that it is basically a market economy controlled by private firms rather than by the public authorities. At the same time he leaves open the question how much public control there would have to be for the system to require a different name. Possibly this ambiguity is deliberate. The dividing line between liberalism and Fabian socialism has anyhow become rather blurred, for a British writer at least. On more general grounds it is questionable whether his use of the term “Western capitalist society” is legitimate. At any rate it owes nothing to Marx. The responsibility for it must be shared between the more conventional free-enterprisers and the Fabian school.

TO COME to what is most relevant and original in Mr. Shonfield’s work: We have here a descriptive study of the post-1945 Western economic environment, together with an account of central planning, and a comparison between the respective performances of the leading West European and North American economies (Japan is excluded as representing a special case—presumably also because it creates some awkwardness for an approach which identifies “capitalism” with the North Atlantic area). The bulk of his descriptive material serves to illustrate the contrasting and complementary experiences provided by Britain, France, and West Germany since 1945. But the American reader will find that the United States has not been neglected, though he may be pained to discover that its economic performance is treated with an unflattering severity quite out of tune with the optimism currently fashionable in Washington. To be told that the US tends to suffer from frequent and deep recessions that are “bound up with its relatively slow secular rate of economic growth” (p. 16) must come as a jolt. I hasten to add that Mr. Shonfield’s harshest strictures are reserved for his native Britain, his highest praise for Germany, France, and the Netherlands. As if all this were not enough, he is skeptical of the benefits popularly ascribed to Keynesian remedies, though duly appreciative of the intellectual revolution associated (among academic economists) with the name of Keynes. To cite one of his more subversive remarks on this topic: “There is indeed an element of paradox in the fact that the two nations which had earliest and most readily absorbed the Keynesian message—Britain and the United States—were also the least successful among the Western capitalist countries in managing their economies after the Second World War” (pp. 64-5). American readers may think it odd that their burgeoning economy should be named together with Britain’s sadly stagnant one; but then they are unlikely to have memorized the corresponding figures for some of the West European countries.

Lest a mistaken impression be conveyed, Mr. Shonfield’s lengthy and detailed analysis of the US economic record, in the latter part of his work, centers on phenomena such as slow growth and high unemployment for which Keynesian influence cannot be held directly responsible. Few people need to be told that the United States has for many years maintained a rate of unemployment (over 5 per cent from 1951 to 1964, a little over 4 per cent currently) which no West European country would today regard as tolerable. What is perhaps less well known is that real income per employed person in the United States during this period grew at a rate almost identical with Britain’s: a little over 2 per cent annually. The British have recently shown themselves dissatisfied with this slow growth, while most Americans seem quite pleased with it. It is true that American earnings are much higher, so that even a small percentage increase may represent a considerable amount. It is also true that the British economy operates close to peak capacity, while in the United States—even during a war boom, and with a Democratic Administration in Washington—sufficient “slack” is maintained to reassure the managers that they will not have to face the unpleasant consequences of a genuine labor shortage. To put it crudely, the US government and the business community (with the grudging consent of the unions) have consistently operated on the principle that the proper functioning of the market economy requires a state of considerably less than full employment. In Britain, whichever party is in office, such an attitude would amount to political suicide. But this is simply a function of the British electorate’s greater awareness of what is at stake. On purely theoretical grounds a case can be made for maintaining a relatively high rate of unemployment as a means of “disciplining” the unions and preventing an undue rise in real wages. As for the impact of full employment and wage increases on the price of goods destined for the export market, this problem hardly affects the United States, whereas for Britain it is crucial. Keynesian monetary policies are irrelevant to this particular issue, nor do they enable any British government to overcome the built-in obstacles towards greater productivity per person employed. These obstacles are social and educational rather than economic, which is why Mr. Shonfield, in his discussion of the subject, has comparatively little to say about monetary management.

THIS DEPARTURE from the conventional wisdom is not accidental, nor is it extraneous to Mr. Shonfield’s main argument, which has to do with the failure of the market economy and the superiority of central planning to the several varieties of economic liberalism practiced in the USA and Britain since 1945. It is after all no great secret that Keynes was not interested in economic growth. As Mr. Shonfield puts it, his chief concern was with “the problem of how to provide employment for more people, using a given stock of productive assets.” This is no longer a topical issue and consequently we are beginning to hear less about the “Keynesian revolution.” To societies on the threshold of “take-off” this particular “revolution” meant nothing anyhow. The curious fact is that it has also meant very little to the Germans, the French, the Italians, the Dutch, and other Europeans with a rapid postwar growth rate. The West Germans, for example, stubbornly ignored Keynes and only began to apply his remedies at a very late stage, when their boom was beginning to slow down. The French behaved as though they had never heard of him, and yet managed a growth rate twice that of Britain. As for the Scandinavians, they were ahead of him: Swedish economists had been anticipating his discoveries since 1912, and the Swedish Social-Democrats in power from 1932 onwards did not have to go to him for advice: They had their own counselors who proved quite adequate. This leaves Britain, and here the case is indeed paradoxical. The British after the war plumped for Keynes and successfully maintained a state of full employment, without a break, from 1945 onward. Unfortunately they also maintained a very slow rate of growth and a steady deficit on their external payments balance. Quite possibly this was the fault of their statesmen, businessmen, and trade union leaders, rather than of their economists, but it certainly is a fact, and the implications are now beginning to be perceived in quarters where it had previously been assumed that in matters of economic theorizing Britain had little or nothing to learn from its Continental neighbors.

It is here that the peculiar fascination of Mr. Shonfield’s work lies, at any rate for someone like the present reviewer who normally resides in Britain and can measure the impact of his heresies on readers brought up to regard economics as a province reserved for Anglo-Saxons. Classical economics was indeed largely a British creation—even Marx was fundamentally a British economist, though he wrote in German. Such theorizing as there was then centered on a particular institutional model: the British one. Continental writers tended to resent this, but there was little they could do about it. The truly remarkable feature of the present situation in Europe is that, for the first time in two hundred years, there are now two institutional models, the British and the French, and that the despised French are gaining ground and actually converting the British to their own way of thinking. This is so unheard-of that few British writers are yet willing to admit it. Mr. Shonfield, brave man that he is, has taken the plunge and stated the fact in bald language. It is a tribute to the inherent tolerance of his countrymen that he has not been promptly stoned to death. For not only does he devote the central part of his analysis to a highly unflattering comparison of British and French economic performance since 1945: He makes it clear that in his opinion the superior record of the French has been due not to fortuitous circumstances, but to certain inherent advantages possessed by the French model. This amounts to a reversal of the traditional relationship between the two countries. “In the history of capitalism Britain and France supply the convenience of sustained polarity.” Historically, the British opted for free enterprise, and later for free trade, while the French clung to state control and protection. Hence the enormous (theoretical and practical) superiority of Britain in the liberal laisser-faire age which ended in 1945. But hence also the current advantage of the French, and to a lesser degree the other Continentals. Never having been fully converted to economic liberalism, they are less inhibited in making the transition to the new era of central planning and public control, while the British are held back by the heritage of their glorious past. It is a reversal of roles such that by now the Continental pupils have overtaken their teachers, not only in actual performance, but also in working out the intellectual tools for dealing with the new set of problems.

THE HEART of Mr. Shonfield’s analysis is to be found in his discussion of the demonstrable failure of “free” unregulated capitalism—or, to put it in historical terms, the collapse of the market economy. This is properly an historical theme, since the collapse occurred in the 1930s and was completed by the Second World War. The new planned and regulated capitalism which arose after 1945—at any rate in Western Europe, if not as yet in the United States—was no longer based on the undisputed predominance of private or corporate entrepreneurship. Instead it was marked by an uneasy partnership between the central political authorities and the corporate economic interests of society—including the trade unions. In this partnership, the governments from the start held the key position. It was, however, an essential feature of the post-1945 situation that this state of affairs had to be camouflaged, especially in West Germany, where the entire official ideology was based on a fictitious return to early liberalism: fictitious since in actual fact the government, plus a handful of bankers, determined the shape of the economy and the rate of investment. Communism being the enemy, all the emphasis was on its polar opposite. Even the term “planning” was shunned, and a sustained effort was made to conceal the fact that the West German economy was being very efficiently coordinated by the public authorities (with, incidentally, the help of a fantastically high tax rate designed to accumulate funds for public investment). The British Conservatives, during their rather less successful stewardship of economic affairs from 1951 to 1964, followed the same pattern, until the grave economic crisis of 1961-2, and the collapse of the Common Market talks in 1963, wrung from them a belated and reluctant conversion to the vocabulary of planning. Even then they could not bring themselves to pursue the logic of their choice to the point of actually placing long-range national goals ahead of the traditional shortrun concern with overseas investment and the balance of payments. Yet “planning” remains a mere word unless long-term aims are imposed upon all concerned, and the imposing has to be done by the political authority. This is as much as to say that, under present-day conditions, not only does the state take over the central regulatory function denied to it in liberal economic theory, but the traditional distinction between politics and economics becomes obsolete.

This is the hard core of the problem analyzed by Mr. Shonfield. Its implications for political theory are evident. What is less evident is the advantage such a situation gives to governments operating in an environment strongly impregnated with traditions of regulation by public officials. For historical reasons, such traditions are more easily revived on the European Continent than in Britain, not to mention North America. It is no wonder that resistance to the introduction of efficient planning from the center has been more marked in Britain than in France, but to a degree the contrast also applies to West Germany, Holland, and Scandinavia. In all these areas the public administration and the central banks became willing partners of the planning authorities, even though in some cases the appearance of political control was avoided.

IT IS A MARK of Mr. Shonfield’s realism—and of his political preferences—that he builds his analysis around a comparison of the British and the French model. To a Conservative, West Germany is more likely to present itself as a suitable guide to follow, while the Labour Party looks enviously at Sweden, where the Social Democrats have since 1932 built up a flourishing economy on the basis of an informal compact between the government, the business world, and the unions. Possibly in the long run the Scandinavian example will turn out to be the pacesetter for a Britain controlled by the Labour Party, but a great deal will have to happen to British union leadership before such disciplined cooperation becomes possible. A matters stand, the drastic measures needed to make the British economy competitive would seem to leave only a choice between German capitalist “frightfulness” and planning à la française; though in either case the rate of casualties among the less efficient firms is likely to be heavy. The difficulty is that the British prefer their own way of life, which is really based on the notion that all interests are legitimate—an odd gloss upon a familiar textbook phrase. Since no one must really be hurt, the convoy inevitably proceeds at the pace of the slowest. As Mr. Shonfield puts it “The upshot is that the British, for all their anti-corporatist tradition, allow effective power to slide into the hands of the corporations without subjecting them to public control—for the national doctrine insists that they are no more than free associations of individuals whose activities are essential to the emergence of a consensus” (p. 163). In contrast, the French, with their habitual cynicism, insist that professional associations be subject to official scrutiny: the presumption being that they are probably up to no good.

This part of Mr. Shonfield’s analysis must make painful reading for his countrymen. It is not that he is uncritically enamored of the French and their way of doing things. He sees quite clearly, for example, that French planning in the early years after 1946 was largely a hit-and-miss affair, if only because there was little accurate information and the statistical apparatus was backward by British (not to mention American) standards. The odd thing is that the system nonetheless worked quite well, whereas the British—with far better statistical equipment and an unrivalled tradition of respect for the civil service—proved very slow in catching up. Even the Labour Government of 1945-51, which nationalized almost as much of British industry as was concurrently being done in France, made almost no attempt at genuine long-range planning. When the Conservatives belatedly tried their hand at it after 1962, they produced only the silly simulacrum of the so-called National Economic Development Council, a body promptly nicknamed “Neddy” by the press and totally forgotten within a year. Nor has the Wilson government so far proved much more effective. Yet Britain’s administrative machine was the equal of France’s and in some respects better. What was lacking was the will to use it. The notion of subjecting the economy to the direction of the public authorities somehow went against the grain, while the French—under both the Fourth and Fifth Republics—took to it like fish to water. In Italy, central planning had been pioneered before the war by the Fascist regime, though haphazardly and on a small scale. Italian planning is still inefficient compared with French, but at least there is no ingrained ideological resistance to it. Nor are the Dutch bothered by it: Official inspection of costs and prices in individual firms is now part of the Dutch way of life. It is true that the Dutch system of wage control has failed to work, but the principle that wages (like prices) should correspond to official guidelines is not seriously contested by anyone.

THE LONG-TERM significance of this changeover to central regulation and control is examined by Mr. Shonfield in a chapter on “Planning in General,” in which he boldly confronts the implications of the new system for the theory and practice of liberal democracy in general, and parliamentary government in particular. He pays a deserved tribute to the French for their pioneering role in setting overall national targets, not only in economics but in social policy as well. This last is crucial, for the balance between economic and social considerations can only be struck by the central planners (with or without democratic control by a parliament, as the case may be). As he points out (p. 227) the French Fourth Plan of 1962-5 (drawn up under the premiership of M. Debré, now once more in charge of economics with the departure of the more traditional Giscard d’Estaing) specifically laid down long-range social priorities. It even insisted on a philosophy of life—“by which it meant that the additional resources becoming available between 1961 and 1965 must not be used merely to satisfy consumer demands which would find their normal expression through the market, but must be devoted to more profound purposes for which the ordinary citizen might not opt spontaneously today, but for which he will be grateful in the future—because by then he will be a different man.” One can hear the cries of horror from some of Mr. Shonfield’s British and American readers, but he is impervious to their alarms. To quote him once more: “This frank emphasis not on what people want now, but on what they will want (or ought to be wanting) in the future is characteristically French in style. But leaving aside the transcendental overtones, it is in practice closely in line with the thinking of the growing body of planners elsewhere in the Western world” (ibid). Amen. I wish Mr. Shonfield at this point had had the courage to say plainly that this is no longer “modern capitalism,” but something else. With this qualification his book can be recommended as the most authoritative survey of the subject yet written.

Letters

French Planning May 26, 1966

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