IT IS small wonder that Gordon Brown loves the American economy — or thinks he does. The latest figures show that it is growing at an annual rate of about 4% and has created more than 2m jobs in the past year.
Share and house prices are moving ahead. Disposable incomes are rising. Oil prices are easing in the face of rising inventories. The falling dollar is bringing smiles to the faces of exporters. Growth in the factory and service sectors is accelerating. All in all, concludes the Federal Reserve Bank of Dallas, reports from around the country “generally paint a picture of continued economic growth ... with (11 of the 12 Federal Reserve districts experiencing) expanding economic activity.”
Some worry that the Christmas shopping season has got off to a slow start. Mighty Wal-Mart decided not to offer real bargains in the early days of the Christmas shopping season, and found that customers were snubbing its stores — well, sort of. After all, it did chalk up what it considers a “disappointing” 8.7% year-on-year sales gain in November. The season should end with retailers ahead by some 3%-5% over last year’s levels.
As always, there are some worrying signs: in the economic analysis business, life is never perfect. America’s trade and budget deficits, and the pensions system await corrective policies from a newly re-elected administration that has yet to put its economics team in place. But all in all, Brown has good reason to envy the performance of the American economy.
It is not the cheerful statistics that are driving the chancellor to attempt to introduce a touch of America into British economic life. He knows that it is America’s entrepreneurial atmosphere that accounts for the exceptional performance of its economy.
The maxim that you aren’t taking enough risks if you haven’t gone bankrupt at least once by the time you are 35 may be an overstatement, but it captures something about the American approach to business that Brown would dearly love to see included on Britain’s list of imports.
The chancellor is a student of American history, so he knows that the economy is not only the world’s largest — with 6% of the world’s people and land, the United States produces 30% of the world’s output of goods and services — but its most creative.
In the words of John Steele Gordon’s new book, An Empire of Wealth: The Epic History of American Power, the US economy “is (the world’s) most dynamic and innovative ... virtually every major development in technology in the 20th century ... originated in the United States or was principally industrialised and turned into consumer products here ... The ultimate power of the United States, then, lies not in its military ... but in its wealth, the wide distribution of that wealth among its population, its capacity to create still more wealth, and its seemingly bottomless imagination in developing new ways to use that wealth productively.”
The American attitude that the world consists of opportunities rather than problems, that merit is the main determinant of where a person ends up in life, is the antithesis of a class system that demands that everyone “know his station”.
And that class system is Brown’s bête noire, the source, in his view, of every problem from the us-and-them attitude that for so long characterised Britain’s industrial relations, to the reluctance of some parents to risk borrowing money to fund their children’s education.
Being a firm believer that Treasury policy is an important determinant of the long- as well as the short-term performance of the British economy, the chancellor has pursued his Americanisation dream by lowering corporate taxes and some taxes on small businesses, and endlessly preaching the virtues of innovation and risk-taking. So far, so good.
But there is more to recreating America in Britain than granting a few tax breaks. The chancellor’s faith in his ability to create an entrepreneurial attitude in Britain is, in a way, the very thing that is slowing the growth of that attitude. Entrepreneurialism flourishes where government gets out of the way. “I’m from the government and I’m here to help you” is a sure laugh-getter.
Potential entrepreneurs are not going to take risks when they know that the profits of their risk-taking will be snatched from them by higher taxes or costly regulations. Brown has steadily increased the share of the nation’s wealth that he is claiming for the armies of civil servants whose mouth-watering pensions are the envy of the private sector.
Worse still, entrepreneurs work hard and take risks so that they not only can take home more money, but also spend it as they choose. Denied a choice of schools for their children, and of doctors and hospitals when they are ill, they have little incentive to put in the extra effort that would earn income that, in America, would increase their range of choices. And that might very well create income inequalities of a magnitude that the chancellor would surely find offensive.
Nor can the spirit of entrepreneurialism survive persistent tinkering with the rules of the business game. Large companies can cope with the flood of new regulations that give government bureaucrats a sense of fulfilment. But the small enterprises that the chancellor is so eager to see flourish in Britain don’t have human- resources departments to study the latest workplace rules, or an army of accountants to determine whether the employment of the founder’s wife will bring down the wrath of Inland Revenue, perhaps retrospectively.
In sum, the chancellor has his sights set on America, and has indeed completed part of the journey towards its dynamic society. But he won’t get there unless he is willing to make some non-trivial mid-course corrections.
Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute
stelzer@aol.com
