Like it or not, Theresa May’s Conference speech was an intellectual tour de force. I asked whether or not she wanted to lead or follow, and the answer is clear. She is creating a new model of Conservative politics. The template looks much like Gaullism, not Christian Democracy; a French right wing model of a strong state combined with national identity politics. Although Margaret Thatcher also praised a strong state, she used it to dismantle those groups or vested interests that she saw standing of the way of families and individuals. Theresa May, by contrast, seems to believe that the state is about actually achieving things directly for people. She correctly has identified that the UK needs a change of direction – and there is widespread dissatisfaction with the current economic model.
Practically speaking do we need more or less from the state?
But how far can ‘liberalism’ be blamed? Assume you are not ideologically predisposed to liberalism. Let us take this site’s mastheads of Homes, Jobs, and Savings as priorities. Things are not going well in terms of home ownership, with home ownership among the 25-34 group declining from nearly six in 10 to just over three in 10 from 2004 to 2015. Decent pensions meanwhile are ever harder to achieve for ordinary people. And while jobs are plentiful, there are continuing worries about wage stagnation for many. But is the problem really too little state intervention or too much? And should the state’s interventions be based on liberal or illiberal principles?
Homes – a crisis caused by an insufficiently liberal state
The current scarcity of homes is due to a 1947 socialist planning system that gives government power to control and ration land. But since we don’t want to scrap this entirely, what should reform look like? It would seek to make local plans and planning about housing delivery and commercial realities to achieve this. It would seek to deal with property rights and so-called externalities (the burdens development imposes on those nearby) such as ensuring new homes are well designed and have the right infrastructure, and reduces the micromanagement in planning. So the state would do less, and place more importance on property rights. Pretty liberal so far. It is true that the conservative reverence for heritage and beauty needs to be enhanced, but the last time the state imposed more through planning in the 1950-70s it did the very opposite. We must be very careful not to empower the state to force through ugliness yet again.
Jobs – a crisis caused by an insufficiently liberal state
There is no jobs crisis in one sense. Unlike many of our (more statist) continental neighbours our current employment rate is 74.5 per cent, an all-time high. One thing free marketers perhaps need to accept is that unlike our land and capital markets, our labour markets do not need major further deregulation. More could be done, but it is mostly a case of defending where we are. It is true that wages have fallen since the crisis and still have not recovered, but as this robust briefing from the IEA sets out, if you really want to tackle the cost of living crisis, you should reduce agricultural subsidies, focus on markets in energy not poorly targeted decarbonisation, deregulate childcare, and so on. Areas where markets are strongest (e.g. IT and clothing) see falling prices. The state of course can also help by reducing taxes – since it takes between 30-40 per cent of all group’s income. The cost of the state is the biggest cost of living issue in the UK today.
Saving – a crisis caused by an insufficiently liberal state
The difficulty in saving and obtaining a good pension, is certainly not a market failure. The collapse in annuities and pensions is a result of government distortions emanating from the Bank of England and the Treasury. The decision to hold interest rates down to ‘stimulate’ the economy is a disaster. There are disagreements among liberals about how fast and far to raise interest rates, but there is broad agreement that the current low rates are a distortion of the market and need to go. There is no way that zero and negative interest rates are a ‘market’ creation. In addition, it was the excess of debt caused by too low interest rates (again set by government via Central Banks) that many liberals (rightly) blame for the financial crisis in the first place. The state is sacrificing the interest of savers to chase short term growth – and in the process also making the housing crisis worse by pumping up asset prices.
Are wider injustices really due to ‘liberal’ policies?
May’s speech was raised other issues – from tax avoidance to migration to the rich not paying their fair share. But it is hard to see from a liberal perspective why taxes on capital and labour should differ as they do at present. The incessant fiddling with the tax code that helps avoidance is similarly not particularly liberal. Moreover, much of the frustration at the ‘rich’ is more to do with people’s own (legitimate) worries about their difficulties on homes, savings and wages. The one area where May was absolutely right to attack the ‘liberal’ consensus was migration – where she also deserves credit for past actions. I hope to turn to this in a future column – because all too often ‘liberalism’ has been caricatured as a call to open borders. But this misunderstands what liberalism is based upon: it is possible to be a liberal Conservative and believe in (some) restrictions on migration.
Liberals versus Conservatives – a false dichotomy
The idea that the the main issue today is the divide between liberalism and conservatism is simply not true. The Tory party since at least the 1930s has successfully blended conservative and liberal thought. On solving the bread and butter issues of homes, jobs and savings – which also would do more to support family life than any moralising sermon – there is far more to unite the two strands than divide them. It is true that the state is not always a negative, but the old Tory prescription of a smaller state doing less – but doing it better – remains the right one.