Leading Article: Toss another dogma on the bonfire

SHORTLY before the 1979 general election, James Callaghan, driving through Parliament Square with his adviser, Bernard Donoughue, confided that he detected 'a sea-change' in politics. 'There is a shift,' he said, 'in what the public wants and what it approves of.'

When tens of thousands of trade unionists march through London to applause from office workers and motorists, when newspapers and top industrialists try to outdo one another in denunciation of a Tory government, when ministers seem to lose control of events to their own backbenchers, another political sea-change has surely begun. The British were told they had achieved an economic miracle during the Eighties. Bureaucratic regulation, restrictive practices, market-distorting subsidies, industrial over-manning - all these had been put on the bonfire, setting free an enterprise culture that could conquer the world. The recession was merely cyclical. The pain, both in the early Eighties and in the past two years, was pain for a purpose. If policy held firm, Britain would emerge stronger than ever. Electors believed that argument in April and so returned a Tory government. They no longer believe it. The Government no longer believes it.

That is why there has to be a change of direction. But whether John Major grasps what is needed is another matter. Last week, he talked of 'a strategy for growth'. This, commentators suggested, meant sharp cuts in interest rates. But lower interest rates do not constitute a strategy. Indeed, far from leading a recovery in consumer spending, they may be used only to pay off debt. If the Prime Minister is to have a proper strategy for growth, he must do more, much more. He needs to start a new bonfire which will consume many of the Tory dogmas of the past decade.

First, ministers should understand that, when consumers refuse to spend to such an extent that the country is threatened by slump, the Government must spend for them - a truth grasped by J M Keynes and F D Roosevelt nearly 60 years ago. Far from taking their public spending chainsaw to the Jubilee Line extension, ministers should be looking for new ways to set people to work on improving public transport, repairing schools and building homes. A deep recession, when labour and materials are cheap, is precisely the time to launch such projects.

The objection is that spending would unbalance the budget, frighten the foreign exchange markets and send sterling into free fall. But the exchange markets will put up with an unbalanced budget provided they believe ministers have the will and the means to balance it at a later date. So, second, the Government should announce that, when necessary, it will increase revenue. This could be achieved by, for example, charging for the use of some roads (which raises the equivalent of 2p on income tax in France). If that is not enough, the Government should raise taxation. There would go another Tory dogma.

Third, ministers should acknowledge that Britain is trapped in a low-skill economy. It almost beggars belief that Gillian Shephard, the Secretary of State for Employment, is fighting to prevent cuts in the training budget.

Even with unemployment approaching three million, some companies still report difficulties in recruiting skilled labour. This is the result of a disastrously misconceived training policy, based on voluntary efforts by a network of employer-led councils. The councils' main role is to spend government money on training schemes for the unemployed. Much of this training is of poor quality - partly because the schemes are inadequately financed, partly because employers milk them for cheap, temporary labour.

More important, employers are under no compulsion and are offered no incentive to raise the skill levels of those already in jobs. It is all very well for ministers to say that, if companies want skilled workers, they should invest in training them. Employers fear that, if they do so, the newly skilled workers will be poached by rivals. It is therefore safer to stick to low-quality goods and services.

Fourth, Mr Major and his Cabinet should abandon doctrinal objections to government support for industry. If they do not like the word 'planning', they need not use it. A government can support research, increase capital investment allowances, help organise transport and other support services for clusters of inter-dependent companies, and almost nobody will accuse it of planning or even of feather-bedding. An important book published in 1987 observed: 'In a competitive world, where other governments work closely with their leaders of industry to decide where the effort should be made, Britain has no choice.' Or, as another important book put it in 1989: 'We live in a world not of rival toffee shops competing from either end of the same street but . . . of giant, taxpayer-financed, government-backed enterprises, all out to triumph over us.' The author of both books was Michael Heseltine.