How Economic Liberals Can Win the Tory Battle on Economics

December 26, 2019 • Commentary
This article appeared on UK Telegraph on December 26, 2019.

Twelve months is a long time in politics. This time a year ago, journalist Anatole Kaletsky asked: “Is cancelling Brexit now inevitable?” Theresa May had junked a meaningful vote on her backstop‐​laden withdrawal agreement, certain of defeat, but survived a Tory leadership challenge.

Labour was neck‐​and‐​neck with the Conservatives in the polls. Remainers in Parliament saw a path to delaying Brexit for long enough to facilitate a kangaroo‐​court second referendum, preventing the supposed Brexiteer agenda of Britain becoming Singapore‐​on‐​Thames.

Now, Brexit by Jan 31 looks inevitable. Boris Johnson — a pro‐​Brexit prime minister — is entrenched with a stonking parliamentary majority of 80. While the Conservatives are united on Europe, Labour tears itself apart over whether Brexit caused its devastating election defeat.

Far from Thatcherism 2.0, Conservative success in working‐​class towns has seen the party embrace higher public service spending, regional regeneration and public infrastructure investment as a platform for government. Singapore‐​on‐​Thames has given way to Taiwan‐​on‐​Trent, in rhetoric if not fully‐​fledged policy.

To say the past 12 months have been a whirlwind would be severe understatement. But those interested in a healthy, dynamic, market economy risk letting the relief of avoiding a Christmas socialist revolution mask a warts‐​and‐​all assessment of our current plight.

British politics appears locked now in an equilibrium pitching variants of socialism against a new, as yet policy‐​undefined, blue‐​collar Toryism. Electoral dominance for the latter was not and is not inevitable. Only an unusually transformative political figure in Boris Johnson, intent on delivering Brexit, could have increased the Conservative polling numbers by the 20 percentage points seen in recent months.

Classical liberal economics — the premise that a free economy, relatively unhindered by government action, tends to deliver high growth and a fairly efficient distribution of resources — is being squeezed out of political life. As politics realigns along cultural divisions, free‐​market capitalists find themselves politically homeless.

As Stephen Davies of the Institute of Economic Affairs has outlined, “place” proxies well for their dilemma. Major global cities tend to be cosmopolitan in outlook. But the dominant political manifestations of this outlook are either left‐​wing (globalist, woke left politics and radical green economics) or liberal (in the Scandinavian social democratic sense of taming the free market’s excesses and state‐​delivered economic security).

Old towns and rural regions, particularly those “left behind”, find themselves on the other side of the cultural divide — rooted to local communities. But their dominant political manifestations come in desire for active government regeneration and industrial planning, or, even in its most pro‐​market variety, a form of “capitalism in one country”. Those who support free and open markets both at home and abroad might have found aligning with Boris over Corbyn a relatively easy decision, but they worry about the direction the Tories could lean into.

On election night, former David Cameron adviser Craig Oliver distilled the shift nicely. Cameron had tried to unite the Tory shires with metropolitan liberals. Now, Boris’s coalition combines the shires with working‐​class towns. A shift from being electorally united on economics and divided on culture to united on culture but divided on economics means the Conservatives’ commitment to existing economic orthodoxies (for good or ill) is no longer assured.

A thin manifesto leaves much to play for, hence why groups are limbering to fight for the party’s economic soul. Lest the party fall pray to age‐​old errors — that buying local makes us more prosperous, or subsidising failure generates success, or that industrial planning works — classical liberals in the Tory tribe urgently need to adjust their energies to explain how free‐​market ideas can be pro‐​working class, and how it is central government that often impairs economic opportunity for the regions.

They have some policy building blocks already in place. With different electoral economic tensions, the Tory party platform is unsurprisingly a ragtag of economic ideas. But some are pro‐​market. Boris is instinctively anti‐​nanny state, for example. His team has made positive noises towards pro‐​investment tax reform to raise productivity, land‐​use planning reform to improve worker mobility, an expansion of free trade to reduce prices, and freeports to offer a reasonably market‐​friendly way to encourage development in coastal areas.

But to prevent other bad interventionist ideas taking hold, pro‐​market types need emphasise a key truth: the higher public service spending Boris desires requires a growing economy. And that can only come sustainably from embracing dynamism and economic change, not insulating industries or regions from it through tariffs, state aid or even preferential taxation.

Economic liberty breeds security — at least in the long‐​term — because it facilitates adjustment to new realities. But in the short‐​term, adjustment is painful. What liberal Conservatives need concentrate on is devising policies that work with market signals, using them as a guide for the skills, infrastructure, housing and research policies needed to allow more people to enjoy economic success.

That requires economic liberals having a compelling story about how government deters inclusive growth for people in our left‐​behind towns and regions. First, policy constrains the growth of many flourishing cities through bad housing and land use policies, making it more difficult for people in poorer cities and towns to move to new opportunities.

It then imposes one‐​size‐​fits‐​all solutions on the country — national minimum wages, national public sector pay bargaining and regional transfers — which, though alleviating hardship in poorer areas, make it more difficult to attract and build new private sector businesses using their competitive cost advantages.

Having done that, economic policy power is then centralised further in Westminster, stripping communities of meaningful fiscal tools to encourage private sector development, or incentivise clearing of space for new activity.

If free‐​marketeers fail to convince Boris that this should be his focus, and that a pro‐​working class agenda can be centred on growth, devolving power and central government humility, then plenty stand ready to offer up the old, dirigiste ideas of subsidies, protection and throwing money at regeneration. And if a year in politics can be transformative, then five years of such a Labour‐​light agenda could deliver a lot of disappointment. 

About the Author
Ryan Bourne

R. Evan Scharf Chair for the Public Understanding of Economics