The June edition of Economic Affairs takes a look at the legacy of The Orange Book, eight years on, and asks ‘Have the Liberal Democrats “reclaimed liberalism”‘, as Laws and Marshall hoped? And what has been the impact on the party and its role in government?
To answer the first question, one has to place The Orange Book in its historical context. This is provided by Dr Stephen Davies’ concise history of classical liberalism in the Liberal Party since 1886, which maps out the rocky path trod by followers of ‘the old religion of free trade, economic liberalism, limited government, and individualism’. Within a generation of the Liberal Party’s formation, on the back of the great victory of free trade and supply-side economics, the collectivists were circling. Following the death of Campbell-Bannerman, the New Liberals were buying in to the efficacy of state-centric solutions. Yet individualism never gave way entirely: classical liberals formed the (ignored) majority of the Royal Commission on the Poor Laws, penned alternatives to the Beveridge Report, and set up or participated in extra-party organisations such as the Individualist Bookshop, the Unservile State Group, the Society of Individualists and (in the case of Arthur Seldon) the Institute of Economic Affairs.
The critical point is that there seemed to be three paths for classical liberals in the Liberal Party: a few battled on, with mixed success; a few more defected to other parties; but for many, disillusionment with the Liberals was not accompanied by a love-affair with a new party, but an abandonment of party politics in favour of fighting the battle of ideas.
The Orange Book was an attempt to fight the battle of ideas within the Liberal Democrat Party. The key theme was ‘the importance of using economically liberal means to deliver socially liberal ends’ (Marshall). Indeed, the book sought a balance between what Laws called the ‘four freedoms’: political, personal, social and economic. It was not that Laws wanted the Liberal Democrats to abandon ‘social liberalism’ but that he wanted them to re-engage with economic liberalism: to recognise that individuals and society as a whole do best when citizens are free to make their own economic decisions, and are in personal control of the services they use. That this caused such shock and anguish amongst some activists says more about their attitudes to liberty than it does about the book’s authors.
Three radical proposals emerged, none of which has yet become Liberal Democrat – let alone government – policy.
On health policy, Laws was unflinching in his criticism of the NHS – not of the failure of individual practices, practitioners or bodies, but of the structure and how it led to sub-optimal health outcomes for millions of citizens. Laws’ proposal was both radical and utterly in keeping with the liberal heritage that he sought to ‘reclaim’: the NHS would be replaced with a National Health Insurance Scheme (the phrase is Deepak Lal’s) that would guarantee healthcare free at the point of delivery to all people, irrespective of ability to pay, but would include a plethora of providers competing for the custom of empowered patients.
Paul Marshall highlighted the need for citizens to develop funded pensions. The state pension, Marshall rightly observes, is becoming unaffordable, as people live longer and the birth rate falls: the burden placed on workers by the retired is becoming intolerable. The obvious solution is to require people to build up private pensions, with payments during the contribution stage subsidised in the case of those on low incomes (a system preferable to subsidising payments to the elderly) and the state providing some guarantee of the benefits that will result.
Vince Cable made perhaps the boldest proposal (and one that is at odds with the policies of the present government, of which he is a senior member), by suggesting that:
‘the state… should not take more than, say, 40% of GDP in tax… [and] that the marginal rates of direct tax should not exceed 50% at any point in the income range.’
Laws has since argued that ‘We are going to have to see a shrinking of the state share of the economy until it is back into kilter with the amount of tax people are prepared to pay‘, a statement which might seem to be self-evident (over the long term, we can only spend what we pay for) but which is at odds with the vast majority of the past century, when deficit-spending was the norm. Yet, as the current debt crisis amply demonstrates, economic growth and public sector reform both require a more realistic approach to the public finances: one that expects the state to survive by what it can raise, and to raise no more than the economy can bear without impairing macroeconomic efficiency and growth.
This will be a challenge for the Liberal Democrats, governments of any colour and all of us. Britain has become too comfortable treating private goods as public goods, and consuming them on the never-never, hoping that future growth will enable us to manage our debt even as that debt stifles the very growth on which our hopes are based. That is the lesson that we can draw from the Liberal Democrats’ classical liberal heritage, and one that the Orange Book Lib Dems, at least, will not shy away from.