The Tories' dilemma

Matthew Parris in the Times raises a challenge for Tories – but not, perhaps, the one he thinks he does.

The government’s willingness to borrow to get through the crisis, he says, undermines the traditional “Conservative case for prudence in public spending.” And if there are not the limits the Tories thought on public spending, then:

The Tories had better brace themselves serious questions about how we can do it for a virus but not to save a shipyard, or the planet from climate change. Or double the future capacity of our hospitals, or legal aid limits, or nurses and carers’ wages.

I think Tories have – and always have had - two answers here. But they contradict each other.

First, let’s dispose of bad reasons for “prudence.”

In part, it is a legacy from different times. In the relatively closed economies of the 70s and 80s, there were limits on how much governments could borrow, set by inflation and savers’ reluctance to lend to the state. Although these limits haven’t been binding for a long time, it’s common for people’s ideas to outlive the reality behind them.  

Also, the idea that government debt is a burden on future generations is wrong, and not just because they can roll it over to the next generation and because interest rates are negative. There’s plenty else that can impose a burden on our children. Recessions have scarring effects, both by reducing the skills and experience young workers acquire, and by making people more risk-averse (pdf) in later life. Equally, poor education and inadequate infrastructure depress people’s incomes in future. And a lack of action on climate change might be catastrophic for our grandchildren. Reducing the “burden on future generations” might as well justify increased government borrowing as lower.

Why, then, have the Tories had an instinctive (if not always realized) desire to limit public spending?

Simple. It’s because they want a large private sector. If there were no moral or prudential limits on government spending, they fear, the state would expand at the expense of the private. Voters do not instinctively favour a market economy. 

One reason why the Tories want a large private sector, of course, is that they are the party of capitalism, and capitalism is about making profits.

This explains why their belief in “prudence” has waxed and waned. Sometimes – as in the early 80s - austerity is needed to depress wages and so relieve the squeeze on profit margins. But at other times,  such as the early 90s and now, capitalism requires increased public spending to shore up legitimacy, compensate for weak private sector demand, or provide the infrastructure that capitalism needs.

But there’s a second reason why Tories want a thriving private sector. It’s that this can sometimes deliver the goods.

The USSR put a man into space but couldn’t give its citizens comfortable shoes. Which shows the strength and weakness of the state. It’s good at achieving single agreed-upon objectives such as winning wars or (we hope) defeating viruses: there are no libertarians in foxholes. But it’s bad at delivering a variety of goods or at innovating to improve the quality of those goods. For this, we need a market economy.

It’s not just material goods that a market economy delivers, some Tories think. Following McCloskey and Montequieu, some believe in “doux commerce” - that commercial society inculcates virtues. They believe that success in markets requires an understanding of what others want, sobriety, prudence and the cultivation of good reputation.

Herein lies the real problem for Tories. These two cases for a large private sector can conflict with each other. “Doux commerce” requires constraints upon capitalists. As Jesse Norman writes in Adam Smith: What He Thought and Why it Matters:

Markets are sustained not merely by incentives of gain or loss, but by laws, institutions, norms and identities, and without those things they cannot be adequately understood.

Profit maximization, however, sometimes requires that these institutions and norms be ripped down, the better to pursue rapacious exploitation, monopoly, and cronyism. You can interpret that much-abused term “neoliberalism” as the process whereby “doux commerce” is supplanted by a harsher form of capitalism – in which we lose the James Timpsons and get the Mike Ashleys.

In this process, says Jesse:

Business activity loses any relation to, and often clashes with, the public interest;…business merit is separated from business reward. These features then feed off and into a culture in which values of decency, modesty and respect are disregarded, and short-termism and quick rewards come to dominate long-established norms of mutual obligation, fair dealing and just reward.

It's not just in the realm of morality that there’s a conflict between capitalism and commercial society, however. There’s also a conflict in economics. A genuinely thriving free market would see few concentrations of private wealth or power, because competition and creative destruction would eliminate them. American leftists have the slogan “every billionaire is a policy failure”, but it would be equally true to say that every billionaire is a market failure.

Herein, I suspect, lies the biggest dilemma within conservative thinking. It does not concern their attitude to “prudence” in the public finances: it is sometimes correct to suspend such prudence. Instead, their problem is: why do they want a large private sector? Because there is a conflict – which has grown markedly in recent years – between a healthy commercial society and more exploitative forms of capitalism.

We might wonder why this dilemma is not more publicly discussed. One reason, I suspect, is that here we have another example of an idea outliving their material base. In the mean and nasty 70s, it was plausible that there was little tension between these two conceptions of a market economy; one could believe that more capitalism would mean doux commerce. It is, however, less plausible now. Another reason, perhaps, is that the Tory party has, in one respect at least, an emergent intelligence that Labour lacks: it knows instinctively that some issues should not be raised.  

Comments

[Phil]

an emergent intelligence that Labour lacks

Unfair. The Labour Right knows very well that some issues are cans of worms that should not be opened, and so does the Labour Left. To borrow a line from Tom Stoppard (writing during the Cold War), one half of the party is at peace with itself and so is the other half. It's just that, in normal conditions, the Right of the party incurs very few immediate costs by highlighting the Left's open wounds, and vice versa. (One reason why the last election campaign was so very special was that substantial parts of the Right managed to persuade itself that these conditions still applied.)

[Jonathan da Silva]

In many respects temporary for sure but the most fiscally conservative economically are the Lib Dems and the well named moderate people of Labour. Indeed the Cons can triangulate or are doing or have done so already.

Rachel Reeves is as low as 2/1 to be Shadow Chancellor. I give up.

[Soleus]

Since business makes its real money from market imperfection (monopoly power), 'business-friendly' and 'market-friendly' policies, while sounding the same, are usually completely at odds with one another. Tories, as the party of big business, have every incentive to bury this distinction.

Thomas Philippon's latest book shows that US policies have been firmly pro-business in this millenium, shoring up monopoly positions in the airline industry for example, because politicians in the US must rely on business for campaign finance In the EU policies have been more pro-market, since DG COMP has been relatively insulated from such de facto bribery.

[Nick Drew]

@ "business makes its real money from market imperfection (monopoly power)"

Is that what you think? Sheesh

[David Friedman]

"One reason why the Tories want a large private sector, of course, is that they are the party of capitalism, and capitalism is about making profits."

One reason why Labor wants a large government is that they are the party of government power, and government power is about being able to push other people around.

That is no more unfair than your statement — and no less. The reason Tories want a large private sector is that they are the party of capitalism, and the reason they support capitalism is that they believe it makes people much better off than the alternative. That belief is dramatically supported where we can contrast two otherwise similar societies that differ a lot in how capitalist they are — East and West Germany, North and South Korea, Maoist China vs Taiwan, Hong Kong Singapore and post-Mao China, Venezuela vs Chile.

You can argue about whether the U.K. would be better off with a little more capitalism or a little less, but the way you put it is rather like saying that the reason surgeons want to do surgery is that they like cutting people up.

[Paulc156]

@David Friedman.
Your country comparisons are somewhat simplified and in a way that transparently sets out to laud 'capitalism'.
All of the aforementioned 'captitalist' states are mixed economies some of them with huge public sectors, some with very little private property and/or autocratic regimes and most if not all with private sectors hugely reliant on public subsidy and protection from competition (internal and external) and varying degrees of monopolisation.

Most if not all the so called non capitalistic states are either Stalinist or state capitalist.
So you have not demonstrated anything more substantial than extreme state capitalism is less productive than so called crony capitalism which Tories traditipnally seem to support.
Set the bar low enough and the flatlining inequality nurturing Toryism the UK exhibits does appear to be relatively attractive. Quelle surprise!