Ethics and economics embrace

Cutting taxes is a moral act, so John Major told us last week. Only 10 days ago the Chief Secretary to the Treasury, William Waldegrave, claimed the same thing for deregulation of the labour market. Then on Friday, Labour told us that its education and training proposals for 16- to 17-year-olds were essential for social justice as well as for economic prosperity.

Each in his own way is trying to persuade us that his ideas are both morally right and economically sensible. After all, the most powerful political movements are those which claim our hearts and our heads together.

Labour's weakness in the 1980s was that many who identified with traditional Labour values felt the party was marching against the economic grain. What use is equality when everyone believes it stifles competitiveness? James Carville, Bill Clinton's strategist, diagnosed the progressives' political failure in a similar way: "We're a bunch of well-meaning weenies."

Things have changed. John Major's speech last week was interpreted as a bid to win back the moral high ground from Tony Blair. However, loss of the ethical consensus is not the real worry for the Conservatives. They should be more concerned that they have lost their claim to be the only party that combines its values with economic sense. While they could claim to be the hard-headed pragmatists in contrast to Labour's heady idealism, they were unassailable. Now the economic consensus is moving away from them too.

Consider the combinations of morality and economics we have been offered in the past two weeks. John Major told us that lower taxes were good for individual freedom and would promote economic prosperity.

However, as voters are aware, cutting taxes involves trade-offs, both moral and financial. The Government has failed to cut the size of the nation's tax obligation. New tax cuts can only be paid for with spending cuts that have moral consequences as well.

Moreover, even if voters are prepared to accept Mr Major's moral preference for lower taxes rather than smaller class sizes, for example, the economic arguments for squeezing the state are tenuous. There is no evidence that reducing the size of the state below current British levels will improve our economic performance at all. Meanwhile, cutting investment and education to pay for tax cuts is definitely a bad idea.

William Waldegrave could do little better. The current (deregulated) state of Britain's labour market was, he told us, good for the economy, good for employment and good for the worst-off in society. However, on his own admission, 17 per cent of those in jobs in 1979 and 1993 experienced no wage increase over the period. Nor can it conceivably be good for the economy to have so many unskilled people out of work for so long. Neither his ethics nor his economics are particularly convincing.

Labour's case is more promising. Take Friday's policy document on education. Getting teenagers to stay on at school is, according to Messrs Blair, Brown and Blunkett, good for the economy, good for equality of opportunity, and good for the poor. The three Bs want to make sure every school-leaver is well versed in the three Rs before they hit the world of work.

All this fuss about education is justified by economics. It doesn't take an economist to realise how important human capital is going to be in future. Demand for skilled workers has gone up. The World Bank, the Organisation for Economic Co-operation and Development and countless academics argue that successful economic growth requires more investment in education and training. Meanwhile, the deregulated market won't provide as much education and training as the economy needs, so government has to intervene.

But the economics fits neatly with Labour's moral prescriptions too. The most efficient economies will be those with recurrent equality of opportunity. Moreover, the best way to help the unemployed and the low- paid is to give them the education they need to get better jobs. Helping the poor, reducing inequalities, shaking up class barriers and helping the economy grow, all require the same prescription: better education.

Finding a set of values and an economic analysis which coincide should instil confidence. For the moment, the Labour Party is still adjusting to the changes Tony Blair has wrought. Many supporters can't quite believe it is possible to combine traditional values with modern economic analysis. Moreover, the answer - education and training - doesn't sound very sexy and inspiring.

But if the Labour leadership can find a way to excite people with its prescriptions, and to deliver change if it gets into government, then the confidence and consensus around the party's ideas should grow. What they need is the kind of bumptious enthusiasm embodied in the title of James Carville's new book, We're Right, They're Wrong.