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Theresa May's speech shows that free-market ideas are in decline

Theresa May
The PM’s speech shows that three decades after Reagan and Thatcher free market ideas are in decline 

In this present crisis, government is not the solution to our problem; government is the problem.” So spoke Ronald Reagan, the greatest US president in modern history; it was music to the ears of Lady Thatcher, herself our greatest post-war prime minister. They became friends and soul mates, making it their mission to unleash enterprise, cut taxes, privatise industries and empower families.

Fired up on the ideas of libertarian economists, they understood that the domestic problems of the day – weak growth, crippling unemployment and generalised decline – were the fault of misguided government intervention. Their supply-side medicine worked wonders, unleashing a wave of entrepreneurship and a popular, aspirational property-owning democracy.

Thirty years later, free-market ideas are in retreat. The drift began well before the financial crisis, and was at first camouflaged by the ongoing march of globalisation, technology and consumerism. New Labour increased spending and intervention; likewise George W Bush, who also subsidised sub-prime mortgages; central bankers injected moral hazard into everything; and David Cameron introduced new workers’ rights, property levies and environmental rules. He increased far more taxes than he cut and bashed bankers. Sir John Major’s government was the last to make, if falteringly, the case for markets, competition and choice; and Michael Howard was the last Tory leader to advocate capitalism.

It is in this context that Theresa May’s speech needs to be understood. It was as emphatic a repudiation of the Thatcher-Reagan economic world-view as it was possible to get without actually naming them: time and again, she said that government was the solution, not the problem. She took explicit aim at small-state libertarians: the subtext was that collectivist, paternalistic Christian Democrats, not individualistic classical liberals, are back in charge of the party. She believes in a large, powerful, aggressively interventionist state that can, she feels, regenerate the country and protect ordinary workers. It will have helped Lord Heseltine get over Brexit; ironically, her vision of conservatism is very continental.

It was not just the sentiments but the tone that were striking. She slammed business, echoing Labour’s dichotomy between good and bad capitalists. She kept talking about tax avoidance, even though the rules have already been dramatically tightened; she claimed that the rich had coped fine after the crisis while workers hadn’t (the truth, of course, is more complex). She believes in stakeholder capitalism, rather than shareholder rights: she sees companies as agents of the social state, with duties other than maximising profits and following the law.

But while a seminal moment, we should be neither shocked nor surprised. Much of the speech merely formalised the current consensus; in practice, very little might change. The difference is that until now Tories intervened, taxed and attacked the rich, but didn’t make it the centrepiece of their pronouncements.

The coalition already pursued an industrial policy, hurting big banks and helping pharmaceutical firms, taxing London and subsidising the North. The Tories have been stealing policies from the Left since the 2000s; it is the language and emphasis that have changed. Once you accept quotas on boards and pay caps in banking, the logical next step is to appoint consumers and workers to corporate boards. It will, of course, achieve nothing, as Germany’s corporate scandals demonstrate.

City
The City of London is grappling with proposed changes to business policies

Yet the speech went further than toughening language or extension of policies. Cameron’s Big Society was based on the correct notion that society is separate from the state; May blurs those concepts. Classical liberals and libertarians believe in voluntary action; they believe in the family and communities, in charities and helping those who cannot help themselves. It is a basic error to confuse their philosophy with atomism or extreme selfishness. Previous attacks on business or non-doms went in hand with corporation tax cuts or a pro-competitiveness rhetoric; there was no balance this time. Her review of labour market rights could threaten Britain’s jobs miracle.

Many of her arguments were implicit attacks on Hayek (author of the Constitution of Liberty, a key reference for Lady Thatcher); May didn’t name check them but her inspirations seem to be Joseph Chamberlain and Theodore Roosevelt. She implicitly rejects the Hayekian idea that the market is a process of discovery, and that the economy should be allowed to develop as a spontaneous order: to her, that’s tantamount to “just sitting back and seeing what happens”. But stating that the Government knows best what our strategic industries should be, and where they are to be based, is itself a case of the elitism that she rejects; Hayek himself wrote a whole book, The Fatal Conceit, on this approach.

Theresa May
Theresa May has proposed a new industrial strategy which includes employee representation on boards

As to migration policy, it’s been Tory policy for years to slash numbers, but a line was crossed when Amber Rudd, the Home Secretary, floated the atrocious notion that companies would be “named and shamed” if they hired “too many” foreign workers. It’s absurd to blame business for following the rules, or to demonise migrants who are legally here, working hard.

Government intervention, not private business, is to blame for many of our problems. Take housing. It is planning policy that restricts the amount of land that can be built on, pushing up prices. 

There are those who believe this Left-wards, anti-capitalist swing shows that us Brexiteers were wrong, proof that quitting the EU will make us a less economically liberal nation. I disagree – at least when it comes to the long run, which what really matters. One reason I backed Brexit is because I fear political monopolies even more than corporate ones. Smaller, decentralised, competing political units don’t pursue bad economic policies for long. They are disciplined by market forces, including global investors, and forced into becoming more rational.

That is why I remain optimistic: sooner rather than later, the Tories will have to see sense again. 

 

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