IEA - Support for ‘Corbynomics’ could see damaging policy mistakes repeated
An outline of Britain’s 13 biggest economic policy mistakes of the last century
Future UK governments have much to learn from the destructive economic policies implemented during the 20thcentury. Repeated attempts to control the economy, ranging from the welfare state and trade union immunities to nationalisation and exchange rate controls have stunted economic growth and trapped many in poverty.
The rise of agendas such as ‘Corbynomics’ threatens to bring policies of this kind back into the political mainstream, as calls for renationalisation, increased government spending and higher taxes gain popularity among voters. Politicians should be mindful of the detrimental effect of such policies, to avoid repeating the mistakes of the past.
In a new paper, Peter Clarke and Robert Miller outline Britain’s 13 biggest economic policy mistakes of the last century. Key mistakes include:
- Growth of the welfare state: The public provision of services such as pensions and healthcare dramatically reduced demand for private and social forms of insurance. The crowding out of private providers led to a decline in investment in industry as the practice of investing savings funds eroded.
- Nationalisation: Over 80 years 13 industries, including railways and energy, were brought into public ownership. Doing so gave one provider a monopoly, removing the incentive to be responsive to customer demands and reducing service quality. Being awarded grants rather than relying on profits encouraged nationalised firms to push for more government money with little incentive to spend it wisely. Between 1970 and 1980 these firms lost the equivalent of £173 billion in today’s money.
- High taxes: Between 1950 and 1970 the highest earners faced tax rates of over 90% on each additional pound earned. This eroded the incentive to work and ultimately reduced tax revenues. High inheritance taxes encouraged wealthy people to move capital abroad and resulted in a loss of investment to British companies.
- Trade Union immunities: The privileged position of trade unions has pushed up wages for workers in unionised industries. Companies hire less and there is an oversupply of labour for non-unionised industries, leading to wages being pushed down whilst unemployment increases. Attempts to bypass troublesome unions have also caused a lack of investment in unionised sectors.
- Abandoning free trade: Starting with the 1932 Import Duties Tariff, which introduced a 10% tax on all foreign trade, protectionist policies have impeded companies’ ability to trade. This not only made Britain poorer and goods more expensive but, contrary to the original intention, has actually reduced tax revenues.
- Town and Country Planning Act: Planning legislation acts as a tax on economic growth. The number of businesses that can enter the economy is limited as it becomes harder to build factories, houses and commercial buildings. Rents are also forced up, putting a heavy strain on personal finances and impeding people’s ability to buy property.
Commenting on the paper, Professor Philip Booth, Editorial and Programme Director at the Institute of Economic Affairs, said:
“At a time when there is increasing support for Corbynomics and high profile politicians are being elected on a mandate to repeat the mistakes of the last century, it is crucial to highlight the negative consequences that previously came about from the adoption of economic policies similar to those being championed today.”
“Nationalisation, high taxes and generous welfare payments do not bring resources under public control for the benefit of all, but instead create a whole host of inefficiencies and perverse incentives that ultimately harm society’s least well off.”
Notes to editors:
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The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.
The IEA is a registered educational charity and independent of all political parties.
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