Brave Old World
The U.K. and U.S. retreat to pre-Reagan-Thatcher economic policies.
12:00 AM, May 8, 2009 • By RYAN STREETER
In what appears to be an unflagging commitment to failed policies, the UK budget promises guaranteed employment and staggering levels of public indebtedness. It essentially creates a universal employment scheme for people under 25 years old, promising to create jobs or provide training in sectors such as "social care" or "other high demand sectors," in Darling's words. To finance its ambitions in these and other areas, the government is raising its borrowing levels to blindingly high peaks, projecting that its debt will account for 80 percent of the British economy in four years.
Because it understands that it needs to commercialize innovation in order to grow, the UK's new budget creates a fund of nearly $1.1 billion for emerging technologies. Then, it raises the tax rate to 50 percent on exactly the population of entrepreneurs that one hopes would be able to create new jobs with the high-tech funds. In short, the UK budget has it all: a robust confidence in the "cool" high-tech sectors of the economy, and an elementary misunderstanding of the incentive structure needed make those sectors grow. Why wouldn't entrepreneurs in high-tech sectors move to the United States, where Obama's increased taxes on the rich actually look good by comparison? Or, might they not move to Hong Kong, or even Finland, where innovating (and speaking English) is encouraged and easier to do?
The U.S. has enjoyed a stable alliance (the so-called "special relationship") with the UK on economic and security matters for a long time. In the past three decades Margaret Thatcher and Tony Blair in particular have solidified the UK's joint commitment with the U.S. to liberalization at home and abroad. The two countries have grown accustomed over the past 30 years to defining the Anglosphere's position on trade, liberty, and democracy while an admiring world attempts to emulate their example. Before our very eyes, the UK is retreating quickly to 1970s-style policies as the U.S. advances to a 21st century version of the Great Society. The progress of the past quarter century is at risk. The UK's recent budget package paints a clear picture of just how precarious things are, and it issues a call--however unintentionally--to citizens, policymakers, and entrepreneurs to recover the fundamentals of growth that have sustained the common economic interests of the "special relationship" since Margaret Thatcher walked through the door of 10 Downing Street thirty years ago.
Ryan Streeter is Senior Fellow at the London-based Legatum Institute.