Economic Theory

Sixty years on: Why the battle for a free society is still yet to be won

Sixty years ago, Sir Antony Fisher founded the Institute of Economic Affairs (IEA), realising an idea given to him by the economist Friedrich Hayek seven years earlier. The IEA is one of the oldest think tanks, and one of the most successful, something even its opponents freely concede. But what does success mean in this context? Were there failures as well as successes? And what are the challenges facing the Institute today as it celebrates its sixtieth birthday?

The goal of the IEA was to challenge ideas and policies that had become politically predominant by the later 1950s – the so-called “post-war consensus”. What was new was the IEA’s method. Rather than lobbying or pressure group politics, public campaigning or working to persuade a particular political party, the intention was to influence and move intellectual opinion – to win the academic argument as the first stage and then to shift policy discussions as a result of this. In other words, the goal was to shift the boundaries of what was considered sensible.

The IEA sought to do this by producing commissioned scholarly research that was accessible and clear but of the highest intellectual standard. Equally important was that its output had no concern with what was “politically possible”. Rather, it put the case for sound economics, whether fashionable and politically feasible or not, and by doing this to actually make things that were unthinkable part of debate and ultimately politically possible.

There were any number of targets in those early years, but three in particular are worth mentioning. The first was Keynesian macro-economic policy and the notion of the government actively guiding or steering economic activity. The second was the belief that the government should directly own or control a significant part of the productive economy, and the related idea that there was a close match between markets and government planning in terms of efficiency. Finally, there was labour relations and the legally privileged position of trades unions at the time.

If we look back now from 2015 at the Britain of the 1960s and 1970s, it is striking how many ideas that were politically impossible at the time were advocated by the IEA, were put into effect later, and are now common sense. On the other side, many ideas that were politically influential and were criticised by the IEA have fallen off the political radar. State-owned industries such as telephones were privatised – something the IEA advocated in the 1960s – and few would now argue for this to be reversed.

The most dramatic change was the defeat of Keynesian macro-economic management. A whole range of associated policies such as exchange controls and detailed control of credit were swept away. Keynesianism of the kind advocated by Paul Krugman in the US has almost no support in the UK, as he himself has complained. Most fundamentally, the idea that there is a real alternative to markets as the basic institution of a modern economy has been buried, with even the most ardent critics saying that they only want to reform markets not replace them.

However, there were significant failures as well as successes, misses as well as hits. Two major ones were welfare and state income transfers which are now even larger, more intrusive and more damaging than when the IEA was founded, and healthcare where the NHS model remains sacrosanct despite persistent underperformance. Another is education, where IEA authors consistently argued for a shift to decentralisation and market mechanisms only to see governments of both parties go for centralisation and manic, top-down managerialism.

A case where the argument has been won is land planning and the housing market, but there has so far been no change in policy at all. So we should not think that this is a story of unqualified success. There have been victories but also setbacks and even reversals.

Moreover, there are new challenges, some of which were not foreseen in 1955, and others which were but which have become even more pressing. The intrusiveness of government into peoples’ private and personal lives and the attempt to manage matters such as child-rearing, diet, and leisure, unthinkable in the 1950s, have now become a staple of public argument. The share of national income consumed by government is now at levels that could be foreseen in 1955, but few then thought they would be reached and they are simply not sustainable. Defending the free movement of labour is now pressing, as is the need to criticise cronyism in contemporary capitalism, and to explain how and why it arises and how to stop it.

In short, the IEA has achieved much in its 60 years, but there are arguments not yet won and new challenges arising.

Dr Steve Davies is the IEA’s Education Director. This article first appeared in City AM.

Head of Education

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).

1 thought on “Sixty years on: Why the battle for a free society is still yet to be won”

  1. Posted 18/06/2015 at 14:33 | Permalink

    In 1970 I wrote a pamphlet for Aims of Industry on denationalization and another for the Society for Individual Freedom entitled ‘Were All Nazis Now’. In both these publications I criticised the welfare state as being an irresponsible society (because it separates in people’s minds the concept of getting benefits from the concept of paying for them). Recommending the so-called ‘voucher system’ as the first step towards dismantling the welfare state was intended to distinguish between the government (out of tax revenues) financing the welfare state from the government itself providing welfare services such as health and education. A couple of years ago, in a paper on ‘The British Approach to Privatisation’, and echoing one of David Parker’s conclusions in his two official volumes on the subject, I ended with the following words: ‘Privatising the welfare state remains important unfinished business’. Both in terms of cost and in terms of quality of output, the welfare state as we know it today is unsustainable. Everyone knows this. I think Steve Davies is right to suggest that the welfare state must be regarded as one of the IEA’s failures (though certainly not for want of trying). I hesitate to propose ‘one more heave’ in view of the quasi-religious opposition to the application of economic principles to this subject. All the same, in the first decade of the IEA’s next sixty years, let’s give priority to getting rid of this well-meant but disastrous and unnecessary government policy. Most people could afford to pay for their own welfare services but for the taxes needed to finance the collectivist welfare state. Of course those who can’t afford need help (I call it ‘charity’) of one sort or another, whether from family and friends, private charities or — in the last resort — the government. But surely that’s a smallish minority not the entire British population.

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