Hammond's weak defence of markets

Philip Hammond said yesterday that the Tories must try to champion the market economy. This won’t work.

For one thing, Labour is not really challenging the market economy. Aditya is right to say it is offering “moderate social democracy… capitalism, of a kind that Angela Merkel would know.” Labour’s nationalization plans focus upon those industries where it believes markets are not working. By all means criticize their diagnosis or remedy, but hyperventilating about them overthrowing the market economy is just stupid. Nationalizing the railways will make us resemble not Venezuela but Germany - and even the most fanatical Brexiter shouldn't panic about this. 

There’s a further problem. It’s that mainstream Tories are not full-blooded free marketeers. In the labour market, they have raised the minimum wage and support immigration controls. In the housing market they favour planning restrictions that stop new building and Help to Buy, measures deplored by serious free marketeers. And there are some markets many Tories want to suppress, such as in sex and recreational drugs. Nor is there anything new about all this. As BBC4’s documentary on Friday reminded us, the Thatcher government’s supposed support for free markets and entrepreneurs didn’t stop it repressing pirate radio stations*.

Of course, you might reply that such restrictions are needed because free markets are not always a good thing. That’s entirely reasonable. But it carries two costs.

One is that it means you can’t use Hayek’s defence of free markets:

Since the value of freedom rests on the opportunities it provides for unforeseeable and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom….when we decide each issue solely on what appear to be its individual merits, we always over-estimate the advantages of central direction. (Law, Legislation and Liberty, vol I p56-57)

The second is that it means the difference between Labour and the Tories is not a matter of principle but of empirics: to what extent is any particular market working well, and if it isn’t what is the best remedy?

Which raises a further problem. Hammond doesn’t grasp the severity of our economic malaise. His claim that “our economy is not broken: it is fundamentally strong” reminds me of Monty Python’s Black Knight protesting that the loss of his arms was “just a flesh wound.” Ten years of stagnant real wages and the worst productivity performance since the start of the industrial revolution tell us that the economy is indeed broken. Windy talk about the market economy won’t fix it. Pretending that the economy is basically fine merely entrenches the impression that the Tories support only the most decadent sections of capital: landlords, rent-seekers and parasitic finance.  

*  The fact these were run by many black people was, no doubt, just a coincidence.

Comments

[Dave Timoney]

Meanwhile, Boris Johnson is farting in the general direction of Europe ...

[Steven Clarke]

I dislike 'big think' pieces on free markets vs. socialism because the Tories aren't offering a free market economy and I doubt Corbyn will provide a successful socialist economy.

I like Mancur Olsen's idea of distributional coalitions. Tory and Labour policy is not dictated by a coherent economic logic or considerations of justice, freedom or other goods.

Rather, they buy off vested interests with concentrated-benefits, diffuse-costs policies. Housing policies that benefit homeowners at the expense of renters and national prosperity. Pay and condition policies that benefit unionized public sector workers at the expense of service users and the tax payer.

The workings of the economy are gummed up to cobble together a large enough electoral coalition.

I believe this is only a partial truth, but a big enough truth to make me cynical that political parties are vehicles for putting into effect a principled world view.

[Blissex]

«Pay and condition policies that benefit unionized public sector workers at the expense of service users and the tax payer.»

That's a lot less of a problem than the Conservatives make it look like. Also because unionized public sector workers are also tax payers and service users, but owner-occupiers and landlords usually are not renters or buyers.

Even more so, Conservative-voting pensioners are usually proprietors and shareholders and don't have income from jobs, and their pension income is a vested right, so many welcome lower wages, higher unemployment, less job security, reduced pension contributions for everybody else.

«The workings of the economy are gummed up to cobble together a large enough electoral coalition.»

That is a lot less of a problem with Labour because it represents the natural interests of its voters.

It is a much bigger problem with the Conservatives because the party represents the natural interests of its sponsors, not its voters, so it has to bribe voters to reach mass towards a majority.
That also was the case with New Labour, that also chose to bribe with massive house price increases the “aspirational voters who shop at John Lewis and Waitrose” of the south, as it was pursuing the interests of its sponsors.

A very big change with Labour is that currently it is entirely funded, and well funded, by its now numerous members, who feel that it now represents their interests; the New Labour party was funded by "donations" by billionaire sponsors, and its membership had dropped drastically, as intended, and this its own funding.

[Anarcho]

"In the labour market, they have raised the minimum wage and support immigration controls."

No mention of the anti-union laws? Regulate unions and strikes means regulating the labour market. "Whenever the law has attempted to regulate the wages of workmen," Smith stated, "it has always been rather to lower them than to raise them."

http://anarchism.pageabode.com/anarcho/poor-adam-smith

Little wonder wages have been stagnating...

[cjcjc]

Are you objecting to the raising of the minimum wage?
And while the Tories may support immigration controls, they haven't exactly controlled immigration have they, not least for the obvious reason.

[Bonnemort]

"Ten years of stagnant real wages"

It's 20 years. Real male median wages are lower now than in 1997. And that's without taking the huge increase in property/rents.

[Blissex]

«Real male median wages are lower now than in 1997. And that's without taking the huge increase in property/rents.»

Median male workers could be less selfish and realize that thanks to their restraint the living standards of so many businessmen, professionals and property owners have improved so much. Rejoice! Rejoice! :-)

[coprolite]

This sort of pish is not supposed to make literal sense in a coherent way, taking into account the meaning of the words.

It is just branding, both of the tories as the heirs of Thatcher and Regan and of JC as the heir of Michael Foot.

This stands up to logical scrutiny no better than adverts that make you associate having a big car with being attractive to the ladies.

In this context, as a strategy, it probably will work to a large degree.

[Lidl Janus]

"His claim that “our economy is not broken: it is fundamentally strong” reminds me of Monty Python’s Black Knight"

You don't need to go back to the 1970s, or to fictionalised comedy. Not when there's John McCain available to present disturbing (for Conservatives) historical parallels.

(From this, we can predict that Boris Johnson will become PM in 2030, and by then the persona will have long since stopped being an act and become worryingly serious).