Tory gunfight for a free market that never was

IN HIS 1939 classic, The Grapes of Wrath, John Steinbeck followed the fortunes of the Joads, a fictional family of 'Okies', sharecroppers from Oklahoma who set out across dustbowl, Depression America to seek their fortune.

We don't know what happened to the Joads when they got to California. But in a new book, Rising in the West, Dan Morgan tells the story of what happened in California to a real family, the Tathams, who left the same Oklahoma village the same year as the Joads in a ropy old Chevrolet truck. Their fortunes ran the whole gamut of the California experience, from fruitpicking to finance. Life was hard until wartime government contracts brought economic recovery to the West as a whole.

Watchers from Britain, dazzled by the glamour of the Californian achievement, can be forgiven for underestimating the role of government there - not least because Californians of the Reaganite school write government out of it. But the story of the Tathams leaves no room for doubt. Without government, the Californian economic miracle would not have happened.

Some prospered mightily, others barely scraped by. Only one of the family, Bill Tatham, made serious money. After antibiotics virtually eliminated communicable tuberculosis, the government sold off TB sanatoria. Oca Tatham bought one with borrowed money just in time to catch the first Sixties programmes which put public money into geriatic hospitals.

When Medicare, the federal programme funding free health care for everyone over 65, became law in 1966, Oca's fortune was made. But his son Bill was clever at manipulating the tax code, getting the government to pay the last dollar in tax credits, tax shelters and dealing in tax-loss business. By the Eighties, when he incurred losses by buying a professional football franchise, Bill Tatham was worth dollars 38m. It had been made by hard work, shrewdness and ingenuity. It had also largely been made out of the government.

Yet Bill Tatham and his friends, the new millionaires of the California suburbs, loathed the government. He supported first Barry Goldwater and then Ronald Reagan. And there is no inconsistency about this: the Western business class hate government, not in spite of, but because of the fact that they owe government so much.

Bill Tatham had only done on a modest scale in the Valley of California what H Ross Perot was doing to the tune of several billion in Texas. Perot's fortune was based on computerising the accountancy for Medicare and its sister programme, Medicaid, free health care for the indigent. Until the regulators stepped in, Perot was making just over a dollar every time a poor or elderly person in nine of the biggest American states had any contact with the healthcare system.

Almost every major business in the United States since the Second World War boom has been critically dependent on government for its prosperity. The oil industry received a 27.5 per cent depletion allowance and other huge tax breaks. The aircraft and aerospace industries depended on government contracts. Civil aviation received mail contracts, and cities built subsidised airports. In the Fifties, the growth of Detroit was boosted by tens of billions invested by government in the interstate highway system. As for agriculture, as one Mississippi farmer once said to me: 'My daddy farmed cotton; I farm the corridors of Washington.'

The shining prosperity of California, the Golden State, depended on federal dollars going into aircraft, aerospace, military bases and 'liberty ships', and on federal and state dollars going into the state's higher education system, once the envy of the world. More fundamentally still, it depended on the hundreds of billions invested by government in the great dams and canals that brought water into the state from as far away as Canada.

From the very beginning of American history, government had been an active partner of the pioneers, the farmers and the entrepreneurs who won successive Wests, from the Appalachians to the Pacific. The farm frontier was built out of quarter-sections of 160 acres, sold from the public lands by the government, which lent the settlers the dollars 200 to buy them. The railroad frontier was built with land grants, and the New Frontier of scientific exploration was paid for with federal money.

In 1981, when Ronald Reagan, former Governor of California, became President, he brought with him into power a whole generation of men like Bill Tatham, who had emerged from the rebellion against taxation which had put the anti-tax Proposition 13 on the California statute book.

Above all, the American business class, especially but not only in the West, believed with passionate intensity in what they called 'the market'. They hated to be reminded that what they meant by free markets were free of government only in a very special sense. They wanted the market to be free of government regulation. They wanted the power of trade unions to interfere in the free market for labour broken - by government. They were infuriated by environmental and other laws that added to costs. They forgot that their free market was possible only because of what government had done and continued to do for them.

Government had made the investments, in railroads, highways, airports, aircraft, graduate schools, hospitals, research institutes, but also in maintaining an orderly and prosperous society. Government was continuing to give them tax breaks, and to spend money on defence procurement and domestic welfare programmes that created vast markets for them. And it stood ready to bale them out if, like the railroads or the savings and loans institutions, they got into trouble.

Such doubletalk about government has been part of the working ideology of American business at least since the New Deal in the Thirties, if not since the Gilded Age of railway expansion and municipal largesse in the 1870s. When American businessmen damned government and applauded politicians who denounced its iniquities, they knew what the rhetoric meant.

But in the Eighties, as British conservatives swooned into the arms of the tax-cutting, privatising ideology of market capitalism, they took it all too literally. They didn't understand that, however much they cursed the government and its interfering, wimpish bureaucracy, their American role models didn't seriously mean they wanted government to stop ordering avionics, or subsidising medical centres, or bringing water to California.

So, like the savage of colonial legend sporting his umbrella in a grass skirt and with bare feet, or like any provincials imitating the metropolitan way of life without understanding its rationale, the Thatcherite intellectuals borrowed the swagger talk about the market without understanding something the American businessmen they so admired never forgot - that what generates economic success is indeed the market operating freely . . . given the conditions established by government regulation, investment and policy.

In the United States, especially if Bill Clinton becomes President next January, a serious national debate will begin, indeed is already beginning, about the proper boundaries between necessary public action and the free markets. It would be too foolish if British Tories, done up like drugstore cowboys in imitation of a Wild West free market that never was, ended up in the graveyard the West kept for cowboys who were not quick enough on the draw, on Boot Hill.