The Conservatives now have a real fight on their hands. After 1979, as champions of free-market capitalism, they seemed to embody the ruling ideology of the age. One best-selling book even called Labour leaders Blair and Brown the ‘sons of Thatcher’. Now the Labour party speaks openly of socialism and has a shadow chancellor, John McDonnell, who lists his recreations in Who’s Who as ‘fermenting the overthrow of capitalism’. It’s no idle threat; in his conference speech he advocated a ‘strategic investment board’ comprising the Chancellor, the Secretary of State for Business and the Governor of the Bank of England to ‘co-ordinate the promotion of investment, employment and real wages’.
The Conservatives appear to have lost the ability to defend freedom. Philip Hammond was content to make some mocking remarks about returning to what he called the chaos of the 1970s and proceeded to put in a good word for ‘market discipline’. He does not seem to have read much Hayek, who defended a market economy not as a discipline but as a dimension of human discovery. There have been plenty of warnings that elements of modern capitalism are morally indefensible, not just from longstanding critics but also by commentators who are solid in their support for a market economy. These criticisms of ‘casino capitalism’ and ‘crony capitalism’ appear not to have registered with Tory leaders.
The Conservatives need to go back to their philosophical roots and remind themselves that historically they stood for a high ideal of freedom, and that their best leaders were determined to avoid becoming apologists for established interests. Sir Robert Peel became Tory prime minister in 1834 and faced a general election under the wider franchise following the 1832 Reform Act. His address to his constituents in Tamworth warned that he would not pander to vociferous pressure groups. If leaders could ‘only support themselves in public estimation by adopting every popular impression of the day’ or were expected to promise ‘the instant redress of anything which anybody may call an abuse’ he would not be a good choice. Instead, he favoured ‘a careful review of institutions, civil and ecclesiastical, undertaken in a friendly temper combining, with the firm maintenance of established rights, the correction of proved abuses and the redress of real grievances’. Nor would he uphold mere orthodoxy. He reminded voters that in the past he had ‘not been disposed to acquiesce in acknowledged evils, either from the mere superstitious reverence for ancient usages’ or fear of change.
Mrs May has obviously forgotten about Peel’s principled refusal to adopt ‘every popular impression of the day’ and his determination to differentiate between real and unreal grievances. In her efforts to prove that the Left does not have ‘a monopoly on compassion’ she listed some injustices that she is in politics to fix. The trouble is they were invented. She cited racial discrimination in police use of ‘stop and search’. Home Office and independent academic studies have shown that there was no discrimination, but Mrs May is proud to have reduced stop and search. Paradoxically, the reduced use of stop and search led to an increase in knife crime, resulting in a real injustice for the victims.
Real grievances include the perverse effects of quantitative easing. The chief beneficiaries, according to Andrew Haldane, chief economist at the Bank of England, have been owners of existing assets. Real GDP per head fell in 2008-09 and not every region has recovered. In 2015 GDP per head in London was above its pre-crisis peak, but in Yorkshire and Humberside it was six per cent below. The recovery, according to Haldane, has been to a significant extent for ‘those already asset rich’, especially for ‘those owning their own home’ or with large pension pots. The inability of younger people to buy their own home is perhaps the most harmful consequences. Mrs May is conscious of this problem but put forward only the most feeble remedies.
There is also much to be learnt from the great philosopher of freedom, Michael Oakeshott, who tried to put his finger on the fundamental truths that are worthy of defence. Our freedom, he said, rests on mutually supporting liberties none of which stands alone:
‘It springs neither from the separation of church and state, nor from the rule of law, nor from private property, nor from parliamentary government, nor from the writ of habeas corpus, nor from the independence of the judiciary … but from what each signifies and represents, namely the absence from our society of overwhelming concentrations of power.’
In short, he says, we consider ourselves to be free because: ‘no one in our society is allowed unlimited power – no leader, faction, party or “class”, no majority, no government, church, corporation, trade or professional association or trade union.’
This valid concern to avoid unlimited power has been distorted into the doctrine of non-interventionism, whereas central to our national character has been the distinction between civil society and the state. We have a collective life as members of a free and democratic political association embracing everyone who lives in the UK. It can be seen as a free system because the primary aim of government is to enhance the individual freedom of citizens. In addition, the government itself is accountable to the electorate, which means we have the power to act collectively by deploying the machinery of the state without it becoming an entrenched dictatorship. It is not only that the government can be removed peacefully, office holders are also trustees for the common good.
Non-interventionists tend to be hostile to all political power, and suspicious of national allegiance, but the single most important quality of a nation is that it is the best arrangement so far discovered for holding power to account. A free state allows for the peaceful transfer of power to an alternative government, when the rulers of the day no longer command the confidence of citizens.
But apologists for capitalism in its current form are undermining what is mutually beneficial about a market economy. If we want to continue adding to our prosperity we must accept that it depends on constant adaptation to fluctuating demand for goods and services through the system of voluntary exchange at freely adjusting prices. We must enjoy the personal freedom to react to incessant alteration of the conditions affecting the occupations available to us and the products we are able to buy. The mistake of free-market fundamentalists is to assume that this freedom to adapt implies minimal government. But freedom does not depend on the absence of government. We must learn to choose between government actions that are compatible with a free economy and those that are not. Compatible actions included contract law, measures to prevent the abuse of private power through cartels and monopolies, and laws regulating corporations, including limited liability.
In his book The Constitution of Liberty Hayek set out to define compatible government actions and finished up with quite a long list. According to Hayek, freedom of economic activity ‘meant freedom under the law, not the absence of government action’. He did not believe that government should ‘never concern itself with any economic matters’. Many government measures were not justified because they did not work but, he said, they cannot be rejected out of hand simply because they entail ‘government intervention’. They should be ‘examined in each instance from the viewpoint of expediency’.
The taken-for-granted assumptions of recent times are shifting. Some say that the real divide is between globalisation and nationalism, but this distinction fails to capture what is really at stake, namely the accountability of political power.
Economic globalisation is based on an abstract model of the economy, which like the EU, insists on ‘four freedoms’: freedom of movement for goods, services, capital and labour. They are not really ‘freedoms’; they are the axioms of laissez faire economics. Goods and services are forms of merchandise produced to be bought and sold, but money is not a pure commodity and people are certainly not a form of merchandise. This narrow, stunted view of the human condition continues to deceive us.
Compatible interventions include:
- Widening the goals of monetary policy so that it targets not only low inflation but also maximum employment and the price of sterling, with the aim being for the exchange rate to reflect the flow of imports and exports rather than currency speculation.
- Reducing the high cost of energy, which has destroyed manufacturing jobs, by scrapping the carbon price floor, encouraging fracking and developing nuclear power via small modular reactors.
- Cutting corporation tax to encourage capital investment and rebuild productive capacity, aiming to have the lowest rate among developed countries at 10 per cent.
- Aiming to ensure that inward investment adds to productive capacity, rather than enabling a simple takeover of an existing company which adds little or nothing to our economic prospects. The government should scrutinise foreign direct investment to ensure that it is beneficial rather than extractive.
- Using quantitative easing (printing money) not to purchase assets, as has been the case in recent years, but to give households extra cash or to fund public services such as the NHS. The current approach has inflated the wealth of a small number of asset-holders, while the second option would spread the benefit of monetary financing more widely.
- Making full use of WTO powers to safeguard domestic industries from aggressive exporters such as China who use dumping and subsidies to undermine competition.
- Creating a network of regional banks that can only lend locally, in order to restore investment power to local communities and rebuild productive capacity.
- Establishing a British Infrastructure Bank to finance a new wave of investment in road, rail, housing, ports, energy generation, manufacturing capacity and the internet. It should be permitted to invest directly in private enterprise.
- Reforming limited liability status so that it focuses protection on those investing in productive enterprise, rather than those engaged in pure arbitrage, for example betting on share prices.
David Green is the author of Inclusive Capitalism: He we can make independence work for everyone, to be published next week by Civitas.