INTRODUCTION

The period between the mid-nineteenth century and the eve of the Second World War is often represented as one of transition for the British state: from small, laissez-faire government to embryonic modern government, that of the managed-mixed economy and welfare state which has endured – albeit much changed – to the present day. This transition necessarily entailed a transformation in terms of government’s scale, scope and impact upon the economy, which, in turn, was underpinned by a transformation in the accepted role of government in the economy. The proper role of government is a perennial of political and economic discourse, but from the classical economists onwards it has been understood in terms of the cardinal choice that all societies must make: that concerning ‘the degree to which markets or governments – each with their respective flaws – should determine the allocation, use and distribution of resources in the economy’ (Wolf 1993: 7). For the classical economists, as for mainstream economists today, this cardinal choice between government or market starts from the presumption that markets are instrumentally superior and then proceeds by way of politics and history to investigate how and why in practice there occurred shifting conceptions of markets’ and governments’ capabilities which justified disturbing the status quo and which resulted in this long-term trend towards big government.

In a telling phrase, Okun (1975: 119) noted that ‘the market needs a place, and the market needs to be kept in its place’. The primary purpose of this chapter is to establish how and why those boundaries were set, at what level of government and with what consequences for efficiency and equity, the twin benchmarks by which government’s economic role is routinely assessed.