Welcome to the hard centre – and the future of British politics

22 September 2018

9:00 AM

22 September 2018

9:00 AM

The Conservative party has to move beyond Brexit and leaders: what is it going to be about? I suggest it has to be about healing capitalism.

Capitalism is the only system that is capable of delivering mass prosperity, but it cannot be left on autopilot. Once every few decades it veers off track and requires active public policy. In the mid-19th century, the old Tory party was revolutionised by Disraeli’s ‘one nation’ agenda, correcting the social catastrophes of early industrialisation. In the 1930s, there was no Disraeli: indeed, no political party rose to the challenge of mass unemployment, which was addressed as an inadvertent by-product of rearmament.

During the 1980s, a tempting new economic doctrine emerged in America: markets were sacrosanct, and government regulation was impeding them. High–powered incentives, linked to monitored performance, would be the carrot inducing CEOs to get tough. A competitive product market, combined with a competitive financial market, would provide the stick, forcing firms to be efficient: only the most profitable ones would be able to attract capital, while badly performing firms would face the threat of takeover. A competitive labour market, combined with reduced access to welfare benefits, would get everyone into a job. Open borders for trade and migration would benefit everyone. Ethics became redundant: self-interest would drive society upwards. In this brave new world, business became the hero, government the villain. Far from finding a new Disraeli to question this doctrine, the Conservatives embraced it with ‘roll back the state!’ In the 1990s, even Labour embraced a diluted version, becoming ‘intensely relaxed’ about people getting filthy rich.

The consequences for social division were starting to look ugly well before 2008 when deregulated financial markets blew up the economy. Reversing long trends, from the 1980s the provinces diverged from the metropolis; the educated from the less-educated. British society, a dense pattern of reciprocal obligations, was being torn apart. Yet there has been little serious rethinking in either party. Labour became so intellectually lost that it got hijacked by Marxists, shunting itself into a cul-de-sac from which it will be difficult to escape. Meanwhile, the Conservatives flirted with good ideas: David Cameron with the Big Society, Theresa May, less specifically, with ‘burning injustices’. But neither narrative became dominant. The concept of the Big Society was fatally contaminated because it coincided with reductions in public spending and, more especially, with the official narrative of ‘austerity’. Even an incompetent political opposition managed to present the Big Society as a deliberate obfuscation of spending cuts: ‘The government is going to cut taxes on the rich and hit the poor, but we needn’t worry about you because you’re going to help each other.’ As for ‘burning injustices’, it rapidly transmuted into ‘we’ll take your house off you if you get Alzheimer’s’: possibly the most ethically offensive and politically inept message ever proposed during an election campaign.

The intellectual comfort zone of each party retreated into equally unviable nests: the Conservatives wanted nation-without-state; Labour wanted state-without-nation. Meanwhile, ordinary people facing new anxieties seized their opportunities to mutiny. In Scotland, they voted for the SNP; in England for Ukip, Brexit and Corbyn. Given the travails of Labour, recovery of the intellectual confidence of the Tory party has become essential for the country.

So what are the options facing the Tories? The American right was lured by libertarianism: ‘neither state nor nation’. This is manifestly ridiculous: I tell my libertarian friends that they do not need to wait in America pining for nirvana. They can breathe the air of freedom from government right now by moving to Somalia. The libertarian agenda appealed to Silicon Valley, naively enthused by Bitcoin’s promise of money without government, and Facebook’s mission of connecting everybody to everybody. Bitcoin is a Ponzi scheme burning the less-educated latecomers; Facebook is producing echo-chambers and abuse. The agenda is irrelevant to the anxieties of ordinary people. For them, ‘stand on your own feet’ sounds more like ‘fall on your own face’.

As with Labour’s ‘intensely relaxed’ narrative, it left the Republican party vulnerable to hijack. While an ideologue seized his chance in the Labour party, in the GOP it was a populist. ‘Neither state nor nation’ could never be a serious agenda for the Conservative party, despite its appeal within the regulation-averse City, and Sajid Javid’s admiration for Ayn Rand and tax cuts. Turning the Conservative party into the Libertarian party would be the royal road to political suicide.

The remaining choice is state-and-nation. For Conservatives, it implies taking seriously Cameron’s lone voice speaking up for society. Labour’s roots in society are the cooperative movement; the equivalent for the Conservative party is one nation made manifest by the firm with social purpose. It is Cadbury — and John Lewis, whose former managing director, Andy Street, was elected the Conservative mayor of Birmingham. Embracing state-and-nation means restoring the ethics of the firm, enhancing the skills of the less-educated and recognising the importance of belonging to place. Each requires tough changes in policies that will outrage vested interests: welcome to the hard centre.

If John Lewis and the purposive firm is to be the Conservative future, rather than a glittering exception, the party will have to embrace the public policies that turn it from aspiration to reality. The high-income societies can be ranged along a spectrum of business habitats from those that encourage firms to consider long-term social purpose to those that encourage short-term private purpose. Germany and France each have habits that encourage the former. In both, founding families have often preserved a controlling interest. Even where shares are more widely held, in Germany the banks aggregate individual holdings and take a long view, involving themselves in company management.

In France a similar outcome is achieved by a large state holding. America is in the middle of the spectrum: the power of financial markets is often limited by the blocking holdings of founding families. America is also now pioneering public interest companies, in which boards have an explicitly dual objective. Britain is alone at the extreme end of the spectrum: few founding families, no state interest, a mentality in the financial sector of ‘if you don’t like it, sell it’, and the collapse of training.

Finance forces firms to focus on quarterly profits. A clear instance of this was when Kraft decided to move into chocolate. As an American firm, the obvious target would have been Hershey, but the Hershey family was not prepared to sacrifice generations of achievement for a heap of dollars. Instead, Kraft went after Cadbury. The City enabled Kraft to grab the firm and default on its promises, just as it had destroyed the Halifax Building Society. The British business habitat needs to change: policies can change it.

One nation is also about belonging to place. Although I now live in Metroland, I grew up in Sheffield. If you have seen The Fully Monty, you will know what the market-worship of the 1980s did to Sheffield: a centuries-old cluster of skills was wiped out. It will take decisive change before the Conservative party is forgiven: the city used to have two Tory MPs, it now has none. Sheffield is not exceptional: the mutiny of the provinces has taken place because their people feel neglected and belittled.

The attitude of metropolitan conservatives was perfectly, albeit inadvertently, captured in a phrase that Janan Ganesh used to describe London’s perspective: ‘shackled to a corpse.’ That will take a lot of living down: the regions must converge on the prosperity of London. This is difficult, both politically and technically. The metropolitan elite genuinely believe that they ‘earn’ their high incomes. In fact, they arise from the concentration of activity in a megacity with wonderful public goods. Airports, rail and road hubs, the Underground and less obvious public assets such as government and reliable law courts have been provided by national efforts over generations. The gains accrue disproportionately to skilled Londoners and landowners: they are capturing ‘economic rents’ that belong to all of us. London is the new oil: we should not kill the goose, but we should tax it more heavily.

The revenue from taxing London should be used to heal our divisions. I don’t mean using it for a provincial ‘benefits street’. Conservatives are quite right to recognise that the left-driven agenda of redistributing consumption (aka ‘equality’) misses the point. People need the dignity of being sufficiently productive to earn a decent living but to be productive, people need massive investment in training, and a cluster of skill-intensive firms in their city. The ideology of leave-it-to-the-market encounters its nemesis in training and in the revival of broken cities: market forces drive firms in the opposite direction. Profit-hungry firms would rather poach or import skilled workers than train them. No skill-driven firm wants to be the pioneer in a broken city because others might not follow. The safest place for such firms is in the metropolis.

Switzerland has solved training. It has recognised that the non-cognitive skills those who do not go to university must acquire are more demanding than the cognitive track offered by universities. In Switzerland, four-year courses in non-cognitive skills are standard, and firms pay for half the cost, ensuring people become employable. Skill-intensive firms can be attracted to broken cities, but it takes active policies, not passive ones such as tax relief. The catalyst for a firm to relocate is often research in a local university that’s relevant to whatever they produce. To make the processes of training and cluster-building credible, we need a new commitment: ‘Whatever it takes.’ By locking into a new course, the government would acknowledge the anxieties behind the mutiny of the provinces, and begin to allay them.

The market fundamentalists and libertarians within the Conservative party will snipe at this agenda: it offends their beliefs and it hits their pockets. One nation marks a return to ethics: as Jesse Norman has brilliantly shown, Adam Smith did not believe that the miracle of the market made ethics redundant. Alongside the invisible hand, he recognised that the exchange of obligations, supported by a presumption of mutual regard, was a vital attribute of a successful society. And it marks the return to pragmatism: not the opportunism of populists, but the recognition that new anxieties need to be addressed by new solutions, not old ideologies. This is the intellectual rebirth that the Conservative party needs. Labour will at some stage go through an equivalent rebirth. The party that gets there first will dominate the next two decades.

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