The two prime movers in government policy are the force of ideas and the force of circumstance. Often they pull in opposite directions. Tailoring ideas to reality is the sign of competence in government. Sometimes, however, governments are so blinded to reality by their ideas that they cannot see events gathering force to blow their policies away. A perfect illustration of this was Black Wednesday, when the Prime Minister and Chancellor restated their commitment to the ERM and the fixed exchange rate almost until the moment when they were driven to devalue and quit the ERM.
People often blame Civil Service advice for ministers' mistakes. But it is not the Civil Service which provides ministers with their fundamental ideas, not at any rate on matters of prime importance, though the Civil Service may sometimes fill a vacuum of ideas. Civil servants like working with ministers to turn their ideas into practical policies. Sometimes in the past, though perhaps less so now, this has involved counselling realism and damage limitation. But civil servants have always been advised to formulate their advice within the framework of the philosophy of the government of the day. Today this framework gives the impression of being more than usually constraining.
New governments bring into office with them a collection of ideas or at least of slogans conceived in opposition. Margaret Thatcher's team brought a radical set of ideas, conceived in large part in reaction against the collectivist or corporatist tendencies presided over by Harold Wilson and James Callaghan and by Edward Heath after his U-turn. They were also a reaction against the industrial anarchy which had damaged British industry and was largely responsible for bringing down the governments of Mr Heath and Mr Callaghan.
When government spokesmen say that under Mrs Thatcher the economy grew stronger, what they really have in mind is the curbing of the power of the trade unions and the shop stewards. A variety of advisers, such as Alan Walters, Arthur Cockfield, Brian Griffiths, Alfred Sherman and John Hoskyns, contributed to these ideas for rolling back the frontiers of the public sector, including local government, and enhancing the role of the private sector and the market economy. A number of these continued to advise the politicians when they became ministers, and the torch has been carried on by think-tanks of the radical right, which have fed ministers with further free-market policies. Where the straightforward operation of market forces is ruled out by the need to maintain a free public service, schemes designed to simulate the market have been devised through trusts in health and education - where at one stage vouchers were the fashionable quasi-market nostrum.
For many decades, it was accepted that there were a number of economic objectives, all of importance, to be pursued - economic growth, a high and stable level of employment, avoidance of inflation, a healthy balance of payments. This concept was replaced by a single overriding objective, to squeeze out inflation. When that was achieved, it was argued, economic growth would follow. The Government treated the balance of payments as a matter of no concern, and for a time it was able to get away with this posture because of the bonus of North Sea oil - which has now been swallowed up in the overall payments deficit.
The rejection of objectives for growth, employment and the balance of payments underlay the tragic farce of the scheme to close much of the remaining coal industry, in the depths of a recession and with a massive deficit on the current account of the balance of payments. The ideology by itself does not, however, explain the way in which the exercise was mishandled. Nor does it explain the worst mistake of all, which was committed in the Thatcher years - the poll tax, the prime cause of Mrs Thatcher's downfall.
Black Wednesday has opened up the possibility of a somewhat brighter economic prospect, and there has been a change in government language. The Prime Minister has spoken of a strategy for growth and he reiterated that priority in his new year interview with the BBC. None of this compares with Mr Heath's U-turn, which followed a high-level secret exercise to prepare a plan for the regeneration of British industry.
This time, of the two principal changes of policy, abandonment of the old exchange rate was forced on the Government; it was not an act of choice. The reductions which have been made in interest rates were bound to follow, since there was no longer a need for high interest rates to support the exchange rate.
But the Autumn Statement also included measures of support for investment, housing and exports which, though limited in scale, were something of a break with the whole previous trend of policy. This U-turn, unlike Mr Heath's, has not given away a lot of extra money so far, but then the Government's room for manoeuvre is limited - though some anti-monetarists will deny this - by the existing huge budget deficit and borrowing requirement.
As a former Treasury man, I regret the loss of reputation suffered by my old department but, in my view, calls for institutional changes - such as the creation of a Ministry for Growth - are misguided. It would do no harm to relieve the Treasury of some of its peripheral functions, but the real need has been for a change of ideas and of ideas-men. We do not yet have sufficient evidence that the era of dogma is behind us.
Sir Leo Pliatzky was Second Permanent Secretary at the Treasury 1976- 77 and Permanent Secretary at the Department of Trade, 1977-79.Reuse content