The coming crisis of Conservatism

Tory ministers have told British business to stop whinging and work harder. These remarks are more significant than generally thought.I suspect they are the bewildered howls of frustration of men who realize that their god has failed them.

What I mean is that, for at least 40 years the central tenet of Conservative economic thinking has been that if only government could "get out of the way", entrepreneurial spirits would be unleashed and the economy would grow.

This belief has not always been wrong. But it is now. Record-low interest rates, a quiescent labour force and the (prospect of) a public spending squeeze has not boosted the private sector. British businesses' get up and go has got up and gone. Quite why this is so is a long story, but it involves:

- the dearth of investment opportunities, due to a lack of monetizable innovations and the migration of low-wage industry to Asia.

- the fact that geography is against the UK. It shackles us to the euro area, and men rarely swim strongly when they are tied to a drowning man.Today's figures show that export volumes grew just 0.3% in the last 12 months, quashing hopes that we can export our way out of austerity.

- the absence of credit growth.

These factors don't just mean that Osborne's hopes of expansionary fiscal contraction are misplaced. They bring into question a decades-old Tory ideology of faith in business and smaller government.

The question is: where does this leave Tory economic thinking? The right's answer is to double up, and demand more cuts in taxes and spending - apparently ignorant of balanced budget multipliers. Ministers' answer seems to be just exhortations to business to do better, accompanied, I suspect, by the hope that something will turn up.

But what if it doesn't? I suspect we'll then see a crisis of Conservatism of the sort that afflicted Labour for years after the collapse of social democracy in the 1970s.

Comments

[Will Davies]

New Democrats and New Labour used to say that the role of the state should be "steering not rowing". But what does this "steering" state do if everyone else stops "rowing"? The Tories don't seem to know. It seems to have become "bailing, not rowing".

[Jim]

If you think that the government has 'got out of the way of business' in the last 2 years, you need you head examining. Every single piece of bureaucracy enacted by its predecessor is still on the books, and more continues to spew out at a rate of knots. The current bunch of clowns wouldn't know a true free market if it landed on them.

[CharlieMcMenamin]

Tories telling off business for not being, er, business-like enough? Oh, deep joy. I am reminded of Brecht:

After the uprising of the 17th June
The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee
Stating that the people
Had forfeited the confidence of the government
And could win it back only
By redoubled efforts. Would it not be easier
In that case for the government
To dissolve the people
And elect another?

[Chris]

I've probably said this here before. I've always worked in the private sector in engineering. Having been made redundant twice, the last time I found myself too old for permanent employment. But I've since made a fair living freelancing my services in a sector which clearly adds value to the economy. I've hardly had any spare moments in 15 years, and holidays are often difficult to arrange.

I'm not alone in this experience and I have a network of contacts of a similar age with similar qualifications and experience doing the same thing.

The problem that I see all the time, and it keeps me earning, is no interest in hard stuff like engineering among people less than about 45 years old. The various companies who employ me, and those in my network, cannot find employees. It's not lack of investment. They've got money but they can't invest it because they can't find people to do the work. Many, including one regular, have outsourced to India and invested there.

Where are the UK specialists? Well, kids just didn't do the hard stuff at Uni. It was a lot easier to do a soft subject and go and work in the public sector and attend endless meetings destroying value. With better pay, pensions and condition - which the private sector cannot hope to match - who can blame them?

So money for investment no problem. People to invest in - go to India while the public sector takes the best people.

[Metatone]

Sorry Chris the commenter, but that's ahistorical rot.

I graduated in 1998 having done plenty of the hard stuff.
British engineering firms weren't interested. They were busy shrinking the numbers they took on, or taking on ex-services types freed up by the peace dividend.

So I invented a couple of engineering solutions and made a bit of money, but finally gave up and went into IT, because at that time working for myself wasn't the right thing - I was too young to build an engineering firm by myself.

As ye sow, so shall ye reap. And British Engineering businesses refused to invest in youth and now they are reaping the consequences.

[Metatone]

So @Chris the blogger:

The company I founded a year or so ago mainly exports. Our problem isn't dearth of opportunities or geography, it's two things:

1) Not lack of credit growth, but actual credit shrinkage. Somewhere down the line, business finance needs to exist - right now it's in very short supply.

2) Aggregate demand in the UK. It's very hard to start a business and subsist solely on exports. If you don't have some home market success to point to, it's harder to do business internationally. Also, the tax situation gets wildly knotty, because it's just not how things are normally done.

Beyond our firm, it's also probably cheaper to move the business to your main market in various ways, rather than just try and be a pure exporter.

We're doing ok overseas, but UK demand is just not there. And yes, I've dug around the competition and none of them are eating our lunch, UK wise they are on subsistence rations too.

[BT]

The real challenge to small-government conservatism is CHINA.

China's mostly state-run fixed investment is at 40% of GDP!

What is it in the UK??

[Keith]

The only problem with this is does the Labour Party have any idea what to do either? A crisis in conservatism requires an effective alternative from the opposition. At the moment both sides are rudderless on the economy. Many of the Labour policies are the same as the tory ones and New Labour is decidedly last century. The thrust of the new Labour economic policy was blown up by the financial crisis. Browns' ad hoc support of the banking industry was effective but represents a failure of the assumptions that he and Blair made the basis of their economic strategy from 1997 to 2008. The crisis is also a crisis in the new labour project. They also relied on the bosses doing the work while they collected the gains from growth.

[Steve]

I'm not sure state involvement in the economy can get much larger in the UK.

Still, when it all melts down, you can build yourself a nice little Marxist utopia there, can't you. Or maybe have a crisis of socialism, one of the two.

[rogerh]

Terribly boring for the poor darlings, no more wheezes or get-rich-quick schemes, just a long slow slog as we and our markets adjust. Plainly more public spending will be needed to stimulate demand - but probably not yet, the markets are not ready. We will probably end up poorer anyway. With nothing to do the MPs will get restive and show their real interest - keeping their seats.

A business in this position would cut non-essential management and keep the better front-line workers and managers. A narrow tin-tack pay structure with a plan to rebuild management with those tried and tested in the long struggle ahead. Investment in new kit will have to wait a while. Regretably politicians have a different agenda, keeping their old priviledges and support structures - shame.

[rogerh]

Sorry - privileges

[Sean]

..As opposed to the current crisis of Economics?

"ignorant of balanced budget multiplier" only if you except the logic of the paradigm. Maybe a clue to the current crisis of Economics?

The rest of us, tend to value the mechanics rather than the model, you know natural selection over the incomplete (rna/dna)but never the less falsifiable robust model.

That cannot be claimed for balanced budget multiplier can it?

[Adam Bell]

I raised something similar in a post on LDV a little while ago:

http://www.libdemvoice.org/atlas-wussed-28158.html

The answer to this 'crisis', I argued, is for a form of Government-mandated demand.

[Mike Killingworth]

Jim, Steve - I notice neither of you point to a successful economy where the State has got out of the way - certainly neither India nor China remotely fit that description. Perhaps you are pining for Somalia, where the main industry appears to be piracy on the High Seas.

Keith: spot on. To be fair to Ed and Ed, I am not at all sure to which grove of academe they should repair to find an idea.

As to the British engineering industry, it has never been internationally competitive. In its "heyday" it relied on captive markets (Empire, Sterling Zone, etc) and since their demise has clarted about to no particular effect. Whic prompts the thought: how important is metal-bashing to economic success?

[Account Deleted]

Crises in conservatism tend to reflect issues of identity and privilege rather than calculations of economic effectiveness. As pragmatists, they will ditch the neoliberal ideological baggage and reclaim "tradition" if they have to.

Even when the ostensible cause of a historical crisis has been economic (e.g free trade or the gold standard), it has reflected more fundamental issues about national identity and the defence of the establishment.

If there is to be a crisis of conservatism in the near future, it will be about Europe, even if the immediate cause is the Euro.

[Account Deleted]

Re the sidebar conversation about engineering, much of the metal-bashing left the UK years ago. We still have engineers, but they are increasingly high-tech roles (and increasingly export-oriented), more akin to IT, which is why the likes of 'Chris the commenter' can thrive as freelancers.

This change makes it more difficult to find candidates with the right skills (as with IT, there is now more specialisation), while the growth in IT and other technical skills since the 80s means there are more industries competing for the talent.

In specialist recruitment, engineering, pharma, and oil & gas have been the big growth areas since 2000 (IT was the big one in the 90s). Specialist recruitment requires scare supply and high pay rates (as fees are a percentage).

Engineering no longer produces the quantum of jobs to make a big difference, even though it is making a decent contribution to GDP. Kids are doing "the fluffy stuff" at uni because more and more middle class jobs are now generic management and business support (accountancy, HR, law, CSR, marketing, IT etc).

[Web]

I suspect we'll see a crisis of Conservatism of the sort that afflicted Labour for years after the collapse of social democracy in the 1970s and that is a process that cannot be stopped. Though you are right that state involvement in the economy can get much larger in the UK.