VII. Pessimism and Prospect

A DEPLORABLE pragmatic tradition has thus developed under which economists have tended to inhibit careful exposition of ‘politically impossible’ solutions. And that very inhibition has contributed to the ‘impossibility’. Alternatively economists have come to believe themselves not to be concerned with ‘political’ issues, yet have in practice allowed a subconscious self-censorship to condition their thought and teachings — a censorship based on their tacit judgment of what electorates will welcome, stomach or reject. When they do declare categorically that a proposal is ‘politically impossible’, they are usually indirectly praising it, even if their real purpose is to destroy what is suggested. They are implying that it has to be renounced solely because politicians will not believe they will be able to persuade electorates (or those who finance their campaigns) to accept such a proposition; or else that (for other, less disinterested reasons) the politicians themselves will be unwilling to make the proposal an issue for public debate or discussion. But the harm wrought occurs chiefly when objections due to the supposed vote-acquisition defects of recommendations remain unexpressed.

The attitudes so created have been inclined to engender an unwarranted pessimism about the prospects of fundamental reform. We must never regard the opinions of voters on any issue important to their well-being as in any sense unalterable. That is why the explicit statement of proposals which are not pressed, or which are even categorically dismissed on account of evident current unacceptability, may be able to play so fruitful a role. A long educative period may have have to precede many fundamental reforms under democracy or even under other forms of government. Thus it would be possible for a Hindu statesman to condemn the caste system as an obstacle to a much needed modernization without advocating its immediate eradication. He could state his case in non-emotive, dispassionate terms and commit himself to take no action without the widest general approval for any reform. In that way he could avoid provoking consternation and revolt.

The ‘impossible’ does happen

Nevertheless, the relative difficulty of getting changes accepted by the people prompts the question, expressed in Professor Philbrook’s (rhetorical) words, ‘Should we not ... distinguish among conceivable changes according to whether we stand some reasonable chance of actually effecting the necessary shift of attitude? Why waste effort by making suggestions which we cannot hope will be accepted?’¹ My answer to this question is weighted differently but is essentially the same as Professor Philbrook’s. He points to the truth that proposals which most often seem to be least likely to be accepted by the people may be the most desirable. This is certainly a consideration which magnifies the importance of refusing to accept public opinion in any form as inevitable and unalterable. But my own answer is empirically inspired. Changes in public opinion of a kind which nearly all experienced observers would have regarded earlier as ‘inconceivable’ do occur in practice.

Schumpeter’s almost terrifying pessimism (in spite of his courageous realism) cannot be accepted. He gave no consideration whatsoever to the possibility that eventual discernment of the very perils to which he was pointing might lead, given the inspired political leadership necessary, to a sufficiently widespread democratic majority supporting reforms in the spirit of the ‘Tocqueville principle’ and acceptance of the rule that all forms of scarcity contrivance (affecting skill-acquisition as well as outputs) should be impartially suppressed because they cause recession, as well as for the regressive incidence. If the economists spoke out, such a solution could not be ruled out as ‘political impossibility’.

Again and again in history the ‘unbelievable’ has occurred when disaster has threatened. This generation has witnessed the formerly totalitarian-minded German people, confronted with the dismal prospects of 1946–7, accepting the Erhard philosophy of ‘prosperity through competition’, and enjoying the consequential ‘miracle recovery’ of the following decade.

That threatened disaster may force a government to retreat from a policy long thought of as politically lucrative was the British Labour Government’s 1969 attempt to curb the abuses of strike-threat power. It proposed legislation then which would have been regarded ten years previously as ‘politically suicidal’. Although its attempt failed the volte-face had important consequences on opinion. Public attitudes now make it appear possible that the Conservative Government will be able to win votes, rather than risk the near-certainty of losing them, by departing from what had been widely accepted as irreversible policy for generations.

Naturally, the proposals have had to be described to the electorate in terms which do not appear to threaten the careers of the union hierarchy or the status of the unions. The objective of the Industrial Relations Bill, in the Prime Minister’s (Mr Heath’s) words, is ‘not shackled trade unions, but free, strong and responsible trade unions’. But it is now beginning to appear almost as though it will be ‘politically impossible’ not to persevere with a Bill which will effectively curb strike-threat power. For the last election was won on the promise to end inflation, while (for reasons reiterated above) the subsequent continuance of strikes has caused reluctant perseverance with the old policy of inflationary validation of duress-enforced labour costs, with prices generally still tending to rise (written in March, 1971). The Prime Minister’s opponents are already making political capital out of his having ‘failed to deliver’, having themselves done everything in their power to obstruct delivery.²

That shrewd politician, Mr William F Buckley, Jr, of New York, recently commented on the extraordinary fact that official encouragement of and official provision of facilities for birth control are now widely accepted in the United States, although for many years practically all politicians skated clear of the issue because they felt that any stand in defiance of religious opinion generally would be politically suicidal. Today not only is ‘family planning’ officially promoted but in several states abortions have been legalized.

And who would have believed only a decade ago that legislation to prohibit resale price maintenance could be sponsored by any British political party let alone achieve enactment? Yet mainly as a result of the cogent logic and skilful exposition of a single scholarly ‘opinion-former’, Professor Basil Yamey,³ one of the most burdensome forms of restrictive practice has now been largely eliminated in Britain,⁴ with benefits for the economy which subsequent inflation has to some extent obscured.

Has the ‘impossible’ become imperative?

At other times, politicians seem to have had a sufficient sense of responsibility or a sufficient concern for their careers to stop short of precipitating disaster through capital consumption or runaway inflation. Thus, the Labour Government in Britain was forced a few years ago to forego the rapid expansion of welfare services which electors had been promised because it feared that higher tax rates would reduce prospective tax revenues. Labour politicians began to advocate the imposition of charges for services hitherto ‘free’. And discussion of the Government’s predicament seems to have helped to create the climate of opinion which permitted the Conservative Party to win an election although pledged to halt inflation, to cut down on welfare expenditures, to impose welfare charges, and to reduce taxes. The new policy in 1971 has again reversed a trend. Recipients of medical and dental services are now to be called upon to contribute more towards the cost — a reform which, significantly, has permitted more generous aid to the genuinely needy. What is important, however, is that the reversal of direction appears to have occurred just in time to have prevented disaster.

Unexpected changes in South Africa

Even more remarkable are the opinion-changes which seem to be occurring in the attitudes of the white voters of South Africa towards the non-whites.⁵ So profoundly do these attitudes appear to have modified over the last two decades that cabinet ministers find it expedient to make pronouncements of a kind which, say, only a single decade ago would have been felt to be seriously damaging to their party. Much of the credit must be accorded to the small Progressive Party, with its one solitary Member of Parliament, which has doggedly exposed the stupidities and occasional inhumanities of the existing treatment of non-Whites. That Party has not been deterred by the seeming ‘political impossibility’ of attempting to challenge current colour attitudes by legislation proposals. Yet these attitudes, inculcated for generations by the dominant Church (and especially among the deeply religious Afrikaners), by teachers, by trade unions and by Nationalist and Labour politicians, seemed to constitute an impregnable barrier to basic change. But since the inauguration of Apartheid, a realization of the economic inefficiencies – the sacrifice of real income and prosperity — caused by colour bars has been the ally of dreamers undaunted by the cry of ‘politically inconceivable’.

One of the main subjects of discussion in the South African Parliament of recent years has been labour shortage, and this in a land where millions of non-whites are excluded from opportunities in order to protect the incomes of white artisans and labourers. But the Minister responsible for African affairs told Parliament recently (September 1970) that, within the Bantustan areas, Government policy recognizes ‘no ceiling’ in the promotion of Africans to the highest positions in the public service, in mining, in industry or in commerce, provided ‘they grow into these top positions from the bottom’, i.e. that they do not expect to ‘be shoved in at the top’.⁶ What is important in the present discussion is not the sincerity of this policy statement but that the Minister dared make it. Not long ago, it would have been ‘unthinkable’.

Nevertheless, the Government vote-gaining or vote-retaining incentives remain the obstacle to more rapid progress towards more racial justice in South Africa and the increased prosperity which would accompany it. The United Party — the main opposition party – has continuously hinted at the need for more mitigation of the inequalities of opportunity which operate against the advantage of the non-Whites. But their spokesmen seem always careful not to say anything which might lose them votes. They must not, they feel, offend organized labour. And the Government, faced with United Party criticisms, constantly try to trap Opposition spokesmen into the vote-losing gesture of displeasing the unions by asking categorically for wider non-White opportunities. For instance, a Government spokesman recently asked ‘whether it was United Party policy that the Post Office should train non-Whites to serve Whites behind counters, and as engineers, telephone technicians and telephonists (to serve white subscribers).’⁷ An Opposition spokesman replied evasively that the policy of his Party was that of ‘ensuring the security and standards of living of the white worker, making full use of the untapped labour potential of the country.’ The Government then charged that their United Party critics ‘scream to high heaven that the Government should train more non-Whites, but when we ask in which jobs the non-Whites should be placed they recoil from their policy and refuse to disclose their point of view.’⁸

There are, broadly, two sources for the pressures which are prompting opinion-makers in South Africa not directly engaged in the vote-acquisition process to break down time-honoured stereotypes and persuade the white proletariat to vote differently. The first, to quote The Financial Mail, is ‘the pressures of economic growth, or burgeoning demand for labour.’ The gates must be opened to the non-Whites, says that journal, because of ‘the sheer impossibility of drawing on South Africa’s limited pool of white talent indefinitely for all the skills, the management and the leadership that an economy of this size and potential demands. The reforms will come.’⁹

The second reason why opinion-formers not in politics have felt compelled to change proletarian attitudes has been world criticism of the ‘petty’ or ‘negative’ aspects of the ‘separate development’ policy.¹⁰ Thus, a leading Afrikaner intellectual, Professor W de Klerk, recently called upon a predominantly Afrikaner audience to reject ‘the godlessness of racialism and protectual mastership’. The Christian Science Monitor reports that ‘significantly, his speech was greeted with enthusiastic applause’. And other Afrikaner intellectual leaders are taking a similar line, calling for a gradual elimination of discriminatory practices based on race or colour. Are they asking for the ‘politically impossible’? A few years ago most South Africans would have answered ‘yes’. Today, many are hopeful. It would be wrong to leave the impression that leading Afrikaner opinion-makers can yet be said to favour the abandonment of ‘separate development’ policy. What they are tending to condemn more and more is discriminations and injustices which occur within its framework.

Prospect of economic collapse to make the ‘impossible’ possible

In referring above to the ‘miracle recovery’ of Germany, I suggested that the prospect of disaster was the main factor in permitting acceptance of the Erhard reforms. Now it seems to me that economic collapse will increasingly threaten the western democracies if they try to persevere with their attempts to restore employment via inflation when everyone has come to expect inflation to occur. As we have seen, this is what has been happening. The developing situation may well force an early choice between democracy, political and economic, on the one side and totalitarianism described as ‘democracy’ on the other. If ‘stagflation’ – recession in spite of inflation – eventually causes countries like Britain and the United States to be stampeded by the pressures of short-sighted thinkers and commentators, the intelligentsia would be most hurt in the beginning.

The danger looming before the western world is a possible outcome of the gradual drift of traditionally free enterprise countries towards a totalitarian concentration of economic power due to reactions to ‘stagflation’. The drift originates in the almost self-perpetuating political weaknesses of which reluctant inflation is the consequence. Because governments have shrunk from the task of exposing the responsibility of the unions for chronic incipient recession, and have been able to hold off rapidly worsening unemployment only through inflation, society strives to protect the real value of its capital in the remaining sectors of the economy in which the price mechanism still operates with relative freedom. Governments then feel compelled eventually to suppress such efforts. That is basically why ‘incomes policies’ and other kinds of totalitarian control have to be resorted to. When the leaders of opinion realize the dangers, will fundamental reforms remain ‘politically impossible’?

In spheres in which the free market survives, people are in a position in some measure to defend the real value of their savings. They can do so not only by refraining from investment in fixed-interest securities (unless a high enough rate of interest mitigates the consequences of inflation) but even more effectively by insistence upon ‘escalator clauses’¹¹ in contracts for the remuneration of the services of men and assets. President Johnson’s Council of Economic Advisors described escalator clauses as ‘vast engines of inflation’, a very subtle reversal of the truth. It is true that the attempt to preserve the real value of wage-rates fixed under the strike-threat (as inflation more or less ‘validates’ them by confiscating part or all of what had been conceded) makes further inflation seem politically inevitable or expedient. That is what gives a spurious plausibility to the Council’s maxim. But the vital point is that, adopted on a sufficiently wide scale, covering not only salary and wage contracts but rent and hire contracts (and accompanied by the logical concomitant of escalator clauses — insistence upon ‘index bonds’ for loans and mortgages),¹² the result would be to force governments to return to the monetary integrity of the pre-1914 era. It is in order to extinguish this expression of social discipline that, when more and more people begin to understand the situation, governments which wish to persevere with inflation ask for totalitarian powers of wage-rate and price fixing, through income policies, freezes, and the like, together with all the other apparatus of control repugnant to democratic principles.

FOOTNOTES TO PART VII

¹ C Philbrook, op. cit., p. 851.

² ‘He is in the process of pushing up prices,’ wrote Mr John Grant MP, in January 1971. ‘It is not too early to predict that the promise that won him the last election will lose him the next one.’ This assertion is a perfect example of the ‘polemical asseveration of “political impossibility”.’ The Spectator, 2 January, 1971.

³ B S Yamey, Resale Price Maintenance, Hobart Paper 1, IEA, 1960 (1st Edn).

⁴ A recent decision of the Restrictive Practices Court has legalized RPM for medicines. But the prices of medicines are met for the most part by the National Health Service.

⁵ Professor Hutt is the author of The Economics of the Colour Bar, IEA Paperback, 1964.

⁶ Quoted in The Financial Mail, September 1970, p. 928.

⁷Ibid., p. 1034.

⁸Ibid., p. 1034.

⁹Ibid., p. 928.

¹⁰ If these criticisms had been better informed, more honest and less bitter, their effects would have been felt much earlier. For instance, the influential New York Times has, through grossly slanted and biassed reporting, gravely misled its readers about the aims and methods of the separate development policy. Its influence has therefore been rather to perpetuate than weaken the causes of racial injustices in South Africa. The reporting of The Christian Science Monitor, on the other hand, has been far more dispassionate and effective in disturbing South African leaders, although its condemnation of racial injustices has been no less severe.

¹¹ I.e. clauses in agreements under which payments (such as wages or rents) are to be made in money units of constant purchasing power.

¹² Index bonds are securities in which the repayment of capital is in terms of money units of the same real value as those which were invested.