Just Capital: The Liberal Economy
Adair Turner
400pp, Macmillan
£20
Buy it at a discount at BOL

On the second page of the first part of Just Capital , Adair Turner makes a shaming admission. It is decorously relegated to a footnote in six-point type, but will be read with glee by his detractors. People familiar with the Confederation of British Industry, he says, "will wonder, in reading this chapter, whether I am not attacking some of the very language which was used by it when I was its Director-General".

Indeed they might. The first third of the book is a sustained polemic against the myth of competitiveness when applied to the nation state. The arguments that lie behind the notion that nation states compete with each other, and that Europe is suffering from a failure of competitiveness vis-à-vis the United States, are "confused in theory, wrong in empirical description of the world economy, and wrong in their description of the causes of European unemployment". Apart from that, the competitiveness industry has a lot going for it.

As the man who handed the CBI to Turner in 1995 when, he ambiguously acknowledges, it "had carved out a name for itself as an advocate of competitiveness", I take a personal interest in this recantation. And I am forced to accept that he makes his case powerfully against the strong-form exponents of competitiveness theory. It is economic nonsense to suggest that nations are engaged in a kind of mercantilist fight to the death. The argument that, faced with the imperatives of globalisation, countries have no choice but to cut spending, taxes and all forms of labour-market regulation is evidently untrue. So is the notion that the US strain of capitalism is unambiguously superior to all others.

My own defence of the use of competitiveness as a policy lever - half-shared by Turner - is that it can help to force otherwise desirable measures of liberalisation and fiscal discipline. Domingo Cavallo introduced a so-called competitiveness package recently in Argentina, designed to achieve just the sort of macro-economic stability that is the underpinning of all the policy prescriptions in Just Capital . And while Turner cannot resist taking aim at those, like William Hague and the Eurosceptic press, who harness bogus competition arguments to their cause, his principal objective is altogether grander. He aims first to assess the reasons for the different economic records of different brands of capitalism; North American, Rhineland and Lombard Street. Then, heroically, he tries to articulate his own model of the liberal economy.

This a high ambition for a book targeted at the general reader. Yet it is no exaggeration to say that he succeeds triumphantly. I have read no better assessment of the relative performance of the UK, continental Europe and the US. Turner demonstrates that while the US record of absolute growth and employment creation has been superior in recent years, European productivity per hour remains appreciably higher. While the UK has caught up a little with France and Germany over the last two decades, the catch-up has been slow: a superior per capita growth rate of only around 0.15% a year.

Turner convincingly demonstrates that there is no relationship whatsoever between the level of taxation and public spending, and economic growth. His key message is that governments, and their electors, still have important choices to make, and that there is no inevitability about lower taxes and lower public expenditure. Tax systems need to be constructed with care, and some forms of labour-market regulation (notably high minimum wages) are dangerous. But if a developed country wishes to spend more on education, healthcare or the transport infrastructure, it is able to do so without seeing its productive base float offshore.

There are, however, some policy prescriptions that are unambiguously positive: macro-economic stability with low inflation, a robust domestic competition regime, and as much exposure to external competition as possible. He sees the UK's major post-war policy error as our delayed decision to join the common market. And the single currency now scores highly as a measure that would improve the micro-economy and promote macro-stability.

Turner's muscular style will win him few friends among those at whose confused thinking he takes aim. His last chapter is particularly pungent. In it he explores the dangerous vacuities of stakeholder capitalism and the paradox of the third way - "an unwillingness to say bluntly that one purpose of taxes is to support redistribution, matched by fuzzy talk of communities, stakeholders and social responsibility". Why not, instead, straightforwardly espouse a policy of "redistributive market liberalism", which at least benefits from a clear intellectual rationale, persuasively set out here?

As politicians of all parties, and the pundits who follow them, contemplate a month of phony war before the real hostilities begin, they could usefully spend a day or two with Just Capital . No other book would do so much to improve the quality of debate on the economic and social questions at issue in the next election.