City-bashing author strikes a chord

IF A BOOK about political economy goes to the top of the non-fiction hardback bestseller list, it must be telling people something they want to hear. When its author finds himself dubbed by a newspaper "the most dangerous man in Britain", it must be telling other people something they do not want to hear. The book carries praise on its cover by John Kenneth Galbraith and Ian McEwen and has been dismissed by one reviewer as "incredible nonsense". Either way, it clearly matters. The book, The State We're In, is an attack on British institutions, in particular British financial institutions, and more generally on the market revolution that swept the world since the early 1980s.

That of itself would be unremarkable, for there have long been plenty of people who want to read about the dreadful state of things in Britain, rather as book-buyers in the United States want to read about the wonderful state of everything in America. What gives the book edge is that its author, Will Hutton, is a leading member of Britain's intellectual left. He is the economics editor of the Guardian, a governor of the London School of Economics, a council member of the Policy Studies Institute and of Charter 88. He is on the editorial board of New Economy and recently fronted a BBC radio series on the City. And he is, the book's publicists made clear, close to the present Labour leadership.

More about why this book should be both so evidently attractive and (to some) so dangerous in a moment. First, what does it say?

The starting point of his argument is that the British economy has been particularly unsuccessful since 1979; that we were in the vanguard of a global experiment with markets that has led to a "self-reinforcing downward spiral"; that our economic system is bound together by a "fundamental amorality"; and that we need a reform not just of British financial and political institutions, but of international capitalism itself.

The blame for this state of affairs is partly ascribed to the Conservative government since 1979, to the largely foreign-owned national press, to the independent television companies, and to the public schools. But Will Hutton's chief villain is the financial services industry. He attacks the whole structure of the City - the banks, the stock market, the pension funds, and the Bank of England - for short-term time horizons, insistence on high rates of return, failure to support manufacturing industry and for its propensity to funnel funds abroad.

So what should be done? Will Hutton argues that we need to rebuild a policy of "Keynesian economics", involving higher levels of state intervention in the economic process. He admires the more directed style of capitalism in Japan and Germany and argues that North American capitalism is much less of a pure market than is generally supposed. He calls for changes in the financial system so that less savings pass through private-sector financial institutions and more through a state-owned industrial bank.

And he calls for the "democratisation of the welfare state", so that it can be more responsive and there is less pressure for its functions to be passed to the private sector.

That, in a nutshell, is the thesis. It is intended to be a polemic, rather than a balanced assessment, and accordingly it is easy to attack on detail. But to do so is to miss the fundamental point that many people find this view of the world very attractive, very "sane". Why?

I think the answer comes in three parts. The first is that the book comes from an expert who gives a simplified view of a complex subject. Nicholas Clee, news editor of the Bookseller sees a parallel with Stephen Hawking's A Brief History of Time and Jostein Gaarder's Sophie's World. All three books give a lot of information for the buyers' money, but more than this, they seem to explain their subjects in language that a 14-year-old can understand: read this and you too can understand what is wrong with the country, how the universe began, or the history of Western philosophy. That is very seductive.

The second element of the appeal is its nostalgia. The things Will Hutton admires in Britain are those that anyone brought up in England of the 1950s and 1960s was taught were special qualities of this country. They naturally include a general commitment to public services, but also to large manufacturing industry, and a sense of fairness and decency rather than greed. This Britain operated within a more stable world. exemplified by the Bretton Woods fixed-currency system. It was a Britain regulated by a male lite for the common good.

By contrast, the 1980s were for many British professionals - particularly in the public sector - a shattering period. Instead of being admired, they were jeered at. A Demos paper published tomorrow, The Battle over Britain, by Philip Dodd, argues that there is a rough strand to British history and to British people - we are, in a wonderful phrase, a mongrel nation - that conflicts with the decent, tolerant, settled, non-materialistic version of the past. This may be more accurate, but for many people it is less comfortable.

The third element of the attraction is that it hits popular targets. The public schools, Rupert Murdoch, the Bank of England have all made enemies a-plenty. But the driving message of the book is hatred of the financial sector as opposed to manufacturing. This cry is an ancient one: it was reflected in The Merchant of Venice, where bashing the City took on the form of anti-Semitism. Moneylenders have seldom been figures of popular acclaim. It is easy to demonstrate that the decline of British manufacturing is merely a local example of a worldwide trend and cannot therefore be ascribed to the evil City. The graph on the left shows how manufacturing employment has fallen in all large industrial countries and that the process just began rather earlier here than elsewhere and has gone further. But do not expect people to be comforted by this information.

If the thesis is attractive, is it also dangerous? Surely not. It may influence the next government here, but it is not going to influence the world. The worldwide commitment to the market economy is too secure: the ideas of the British left are not going to cut much of a path in the growth zones of East Asia and North America.

I can see only one danger. This is that it will reinforce our tendency to make ourselves miserable as a result of our perceived failures, and to fail to delight in our undoubted successes. Look at the second graph, which shows the projected growth of car production over the next 25 years. If that proves right, the most rapid growth will occur outside the present industrialised countries, while production in them will stagnate. If we believe that as a result we are somehow failing, we will be upset. Indeed losing market share in car production would be just the sort of industrial failure that Will Hutton would deplore. Yet the shift of manufacturing from old industrial countries to new ones is surely an inevitability. Instead, we will continue to build up our service industries, including the hated finance.

The lags in economics can be very long. The alternative view to Will Hutton's is that Britain made a number of radical changes to its economic structure more rapidly (and more brutally) than most countries. Accordingly, Britain is now rather better placed to face the next century than either Continental Europe or Japan, as these countries will have to follow suit. But the supporting evidence for this proposition is still patchy. The costs of such change are all too plain, while the benefits are only recently becoming evident. Meanwhile, do not be surprised that many people find it very tough to take, and want to buy books that say it has all been a terrible mistake.