The election on Thursday was a victory for free enterprise and a defeat for Socialism. I was not surprised. In 2013 I wrote a piece for this site entitled Ten reasons why the Conservatives will win the next General Election. Among the factors that have changed is that more people are working in the private sector with fewer on welfare or working in the public sector. The number of self employed has increased by more than half a million over the past five years.
The Labour Party will now have a debate surrounding their choice of next leader as to whether they can win an election with the message of returning to socialism. Ed Miliband was clear that that was the direction he proposed to take us. When asked by a Party activist:
“When will you bring back socialism?”
“That’s what we are doing, sir”
Some of the anti-business proposals were individually popular, but in total proved electorally toxic.
Yet even if the Labour Party returns to the Blairite path (a big if) that does not mean that supporters of free enterprise can relax.
Firstly, New Labour’s wish to suck up to wealthy vested interests was about cronyism and corporatism rather than any genuine belief or understanding of free market competition. Blair’s power worshiping has prompted his continued devotion to the European Union. The Blairite preference is for cutting deals with businesses and their lobbyists rather than for getting out of the way.
But the problem goes deeper. Whatever the next Labour leader happens to say, the hostility to capitalism in the wider population is deep. Support for renationalisation, penal tax rates on the rich and price controls is significant.
Now that there is a Conservative Government, there is an opportunity to address this. The response should not be that everything is fine. Often the complaints from the public are valid. But blaming the market is flawed and Labour’s remedy of greater meddling should not be mimicked. On the contrary the answer is to move away from corporatism towards competition. The Department for Business should be closed down and subsidies scrapped. In the 1970s the case for profits became all too apparent when the consequences of loss-making businesses were considered. Yet the public are entitled to be angry when excess profits are made by the state protecting a company from competition.
Open access should be applied to the railways, rather than the Government handing out monopoly franchises. Tony Lodge has written on this site championing this cause. For the Government to say it’s a matter for the Office of Rail Regulation is pathetic. The rules need to be changed. As Lodge has argued where real competition has taken place it has delivered lower fares, more routes, better trains and happier passengers.
Why am I able to switch gas or electricity supplier, but I am stuck with using that fat cat monopoly Thames Water?
Then there is the “housing market” which is attacked for failing when it is not allowed to function as a proper market at all. There is massive state land banking. There is the requirement for “affordable housing” which, by restricting supply, makes housing less affordable. The planning system is the main culprit in restricting supply. Only one per cent of our country is built on. New housing should be allowed – including in the “green belt” – provided it is beautiful traditional housing of the type favoured by Create Streets.
Wider share ownership is also important and the manifesto proposals on selling bank shares are excellent in this regard. The banking industry has had the wrong sort of regulation – restricting competition while not preventing abuse followed by demands for state bailouts.
Once we have developed a proper market economy we might find that winning public support for it is not such a challenge.
David Cameron understands the challenge very well. In a speech to the Centre for Policy Studies ten years ago he said:
“In 1970, Mori asked the public whether the “profits of large companies help make things better for everyone who buys their products and services”.
The public agreed – by a majority of two to one.
Three decades later, when asked the same question, the public – by two to one – disagreed.
For too many people, profit and free trade are dirty words.
You can see it when our most popular capitalist entrepreneur thinks the best way to win his bid for the National Lottery is to make it “non-profit.”
You can see it in the Christian Aid poster that compares free trade to a tsunami.
The consequence of this cultural hostility to capitalism has been a massive rise in risk aversion, a willingness to concede more and more power to the state to try and take more and more risks out of life.
Health risks. Safety risks. Inequality risks. Security risks. Environmental risks. An ever-increasing burden of regulation applied by modern states and their agencies.
We can see the results. A regulatory burden costing Britain’s economy an estimated £40bn a year. Britain has fallen from 13th to 51st in the World Economic Forum’s regulation league table; and we dropped from 11th to 26th on bureaucracy, so that overall, Britain has fallen in the world competitiveness rankings from 4th to 13th.
But regulation is not a problem limited to Britain, or indeed to developed economies as a whole.
Some people argue that regulation in the developed world is a good thing, but that poorer countries are under-regulated, which is a bad thing.
They’re wrong on both counts.
A recent report by the World Bank found that businesses in poor countries face much higher regulatory burdens than those in rich countries.
The combination of the presence of higher administrative costs and the absence of property rights can have a devastating effect.
It takes 153 days to start a business in Maputo, but just two days in Toronto.
There are 21 procedures to register commercial property in Abuja, but only three procedures in Helsinki.
It costs 126% of the value of a debt to enforce a contract in Jakarta, but 5.4% of the value of a debt to do so in Seoul.
If a debtor becomes insolvent and enters bankruptcy, creditors would get 13 cents on the dollar in Mumbai, but more than 90 cents in Tokyo.
Where would you want to do business?
So promoting wealth creation – at home and abroad – means changing the climate of opinion so that politicians and bureaucrats who argue for measures that damage business and economic competitiveness are less likely to succeed.
In short, we need to campaign for capitalism.
To promote profit. To fight for free trade. To remind, indeed to educate, our citizens about the facts of economic life.”
Presenting the moral case in international terms is very powerful. Matt Ridley among others has written about the extent to which free trade has reduced poverty in the developing world. But before we can persuade people that capitalism is a good thing we need to demonstrate what proper capitalism is.