Share Who killed Tory economics? Not Brexit, but the Home Office.

Who killed Tory economics? Not Brexit, but the Home Office. Thatcher and Cameron had an economic vision - May just moralises

Thatcher and Cameron had an economic vision - May just moralises Too many Tories are LARPing Thatcherism, not offering practical economic ideas

A weird and disturbing change has come over the Conservative Party.

I’m not talking about the raging divisions and defections over Brexit, or the fact it seems to be preparing to get rid of yet another leader — after all, civil war over Europe and regicide are longstanding Tory traditions.

I’m talking about a much more unusual and unprecedented phenomenon: the fact that the Tories, both in government and more generally, seem to have stopped talking and thinking about economics.

A change of tune, or: how the Tories used to talk about economics.

This change is a very big deal.

For most of the last few decades, the Conservative Party has prided itself on it ability to tell an economic story, to explain its right to govern in terms of an overarching economic vision for the country. This economic story has been essential to the Tories’ electoral success.

For Thatcher, that story involved entrepreneurship, deregulation, privatisation; it was so much a part of her brand that these values became known around the world as “Thatcherism”. The Coalition had its “long-term economic plan” based on reducing the deficit, which was namechecked in every speech and press release with what Chesterton called the “eternal appetite of infancy”. In both cases, the Tories presented themselves as the party of national prosperity, and of hard-nosed economic realities, and many people voted for them on this basis.

Now you may agree with Thatcherism and deficit reduction, or you may not. Some argued — and continue to argue — that they represent bad economics. I should be absolutely clear right now that whether you agree with the economic ideas of previous Tory governments is totally irrelevant to the rest of what I am going to say.

What matters for the purpose of this article is that they were big narratives, constantly reiterated, and came to define contemporary political debate and what the Tory party stood for. Economics was never everything, of course. Tory governments also presented themselves as patriots, as upholders of social norms, as geostrategists, and many other things. But the economic story was always an important one. And when it ceased to be credible, when the Tories stopped trying to tell an economic story — most notably after the ERM crisis in the early 1990s — they came to grief.

These economic narratives were not just spin: they were underpinned by policy work and ministerial time and energy. The Thatcher Government spent both money and political capital on monetary discipline, on fighting trade unionism, on privatising industries and so on. Likewise, austerity was not a cheap or pain-free policy for the Coalition, either in terms of its popularity (remember George Osborne at the Olympics?) or its ability to pursue other goals (qv the resignation of Iain Duncan Smith over funding for Universal Credit).

The Tories’ economics narratives also found expression in human form in the structure of government and in the Government’s allies. The close relationship between Cameron and Osborne, the structure of the Coalition’s governing “quad” (half of whose ministers were Treasury ministers), and the prominence of economic advisers like Rupert Harrison all show the importance of economics to the pre-Referendum government. Or the importance to Margaret Thatcher of economically minded outriders like Alan Walters, Keith Joseph, the CPS, IEA and ASI*.

Things have been very different, however, since the change of leadership in 2016. Today’s Conservative Government scarcely seems to talk about its economic vision at all.

What’s changed?

Fiscal events are postponed, and when they occur, they’re low-key. Investments that would have been ceaselessly trumpeted and re-announced by previous Tory governments are brought out quietly, as if they were bad news to be buried**.

It’s not just a question of reticence: policy areas that would traditionally have been seen through an economic prism are discussed from a social or national perspective instead.

Take the digital economy, an area the previous Government and many governments around the world have sought to promote. The most high-profile pronouncements from the current Government on the Internet seems to have been not about maximising its contribution to the economy, but on the Internet as Social Menace. Issues that have been granted political airtime include banning encryption, regulating pornography and cracking down on businesses like Deliveroo and Uber.

The Government gives the impression that it sees its job as to form a moral view on the economy, and deploy the law against the bad bits — as soon as it can work out what those are. As former Conservative minister Sam Gyimah put it, it feels like many on the Right have a “scrambled compass” when it comes to business and to capitalism itself. Now of course, it’s entirely right that governments should take ethical stands on issues. But the extent to which this Government sees the economy not through an economic prism but through a moral one seems remarkable.

The Government’s downgrading of economic thinking also manifests itself in organisational terms. The Treasury, the traditional home of economic thinking in Whitehall, is weaker than it has been for decades, and seems more than usually distant from Downing Street. Even obsessive Westminster-watchers would struggle to name a Conservative economic adviser close to the PM. The Civil Service is led, very unusually, by an official who has never worked at the Treasury (the last PM to have a Cabinet Secretary with no Treasury experience was Neville Chamberlain).

All this makes for a Government that shies away from economic thinking, that tends to see issues that others might see as economic through other lenses, and that has made little attempt to tell an economic story about the UK. We’ll look later about the effects this has had on the UK’s economic policy, but before that, it is worth asking why this change has taken place.

Who killed Tory economics? Not Brexit, but the Home Office.

It’s tempting to blame Brexit. After all, to the extent that the Tories’ economic story has involved being the businessman’s friend, the dissatisfaction that many businesses feel with the Brexit process (and Brexit full stop) creates a great disturbance in the Force. When senior Tories are quoted as saying “fuck business” (regardless of the context) traditional Tory economic narratives are harder to maintain. The fact that the big economic departments — HM Treasury and BEIS — are run by ministers associated with Remain no doubt also plays a role.

But there’s no intrinsic reason why Brexit should have killed economic thinking. Some ardent Brexit supporters, such as Dominic Cummings, make the case for Brexit very much in right-wing economic terms. The same is true of “Lexiteers” on the Left. So it’s hardly inconceivable that a different type of pro-Brexit Tory government could have been talking a lot more about economics.

I’d argue that the main reason for the demise of Tory economic thinking is cultural and institutional. To be precise, it comes from the culture of one institution, the Home Office. The PM and many of her closest advisers spent many years working the Home Office and are steeped in its particular culture and world-view.

Keynes famously talked about the “Treasury View”, a sort of desiccated obsession with the UK’s public credit that knew the price of everything and the value of nothing. But if you want to understand Number 10 in 2019, the déformation professionelle you need to understand is that of the Home Office.

Let’s briefly compare the Treasury’s mindset with the Home Office’s.

The Treasury’s tools are economic nudges: here a tax change to push people along the demand or the supply curve, there a tweak to regulations to change incentives. It can’t directly command armies of employees to do its will; like the Pope in Stalin’s maxim, the Treasury has no battalions. The corridors of the Treasury are permeated by a fear — even an expectation — of unintended consequences. (And of their inverse: the idea that you get what you want by taking an indirect route, as set out eloquently in John Kay’s Obliquity.)

Being a budgetary ministry also gives the Treasury an acute awareness that resources are scarce, and a small-c conservatism that stems from the knowledge that the best laid plans gang oft agley. (Especially when they are administered by people from Other Government Departments and especially when they involve spending money.) The various components of the Treasury View — awareness of unintended consequences, of obliquity and, of the scarcity of resources are all manifestations of what I’ve been referring to as economic thinking.

The Home Office, by contrast, hardly thinks economically at all. As Will Davies pointed out early in the PM’s tenure, it’s a department dedicated to keeping good people safe and to keeping bad people in check. It has lots of employees it can get to do things directly, and these employees preside over impressive, solid things like prisons and border posts. It appeals to strong emotions like patriotism, community spirit and fear. It deals with victims and with wrong ’uns. Not for the Home Office the nuances and nudges of the clever, pale young men and women at the Treasury. The Home Office doesn’t do incentives: it Cracks Down, it Tightens Up, it Sends a Strong Message.

A story from the early days of the May premiership brought this home to me. For some reason, a number of senior Downing Street advisers had a discussion about business issues. The discussion turned to the issue of late payments to small businesses. The fact that big businesses often pay their invoices late is a perennial issue for the business department, but successive governments have regarded it as a hard problem to solve, given the state’s limited ability to intervene in commercial practices. A former Home Office SpAd now at Number 10 thought about this problem briefly and suggested “couldn’t we make late payment of invoices a criminal offence?” Everyone else was speechless, but that’s the way they roll in the Home Office.

Once you understand the Home Office’s Route One view of the world, the little bits of economic policy that the Government has attempted begin to make more sense.

Erdington Economics, or: economic policy for people who don’t like doing it

To the extent that Number 10 has an interest in economic policy, it is the economics of “Erdington Modernisation”, that version of self-proclaimed One Nation Toryism associated with Nick Timothy, the PM’s former chief of staff best known for writing the Tories’ self-destructing 2017 manifesto.

It’s a belief that British economic policy has spent far too much time and money on winners, and that the country would be both fairer and more prosperous if we diverted resources to the Rest. So we have a review of post-18 education aimed at defunding universities and putting the money into further education colleges. We have a set of programmes like Be The Business aimed at helping the so-called “long tail” of low productivity firms to become more productive, and most recently we have a fund for “towns”. (If you’re not up on the current UK political lingo, be aware that a “town” doesn’t mean “something between the size of a city and village”. To be a town you have to be economically deprived too. Mansfield, Grimsby and Wigan are proper towns; Cambridge, Milton Keynes and Esher are some other kind of nameless conurbation. Get it?)

To use Nassim Taleb’s characterisation, Erdington economic policy argues we should focus on Mediocristan — the average business, the average worker — rather than Extremistan — the upper (and lower) end of the distribution.

On one level, this makes sound political sense. Most people are by definition normal — that’s statistics — and almost everyone agrees that the role of economic policy is to create a better life for the majority of people, not just a small elite. (“For the many, not the few”, to coin a phrase.)

The problem is that intervening directly in left-behind towns, low-productivity firms, and low-skilled workers isn’t necessarily the best way to achieve it. It comes back to the old dichotomy between the Treasury View and the Home Office View. In the Treasury View, in the economic mode of thinking, obliquity is commonplace. The economy is complicated and unexpected consequences abound. The Home Office is more Route One: if there are villains, you bang them up. If there are illegal immigrants, you deport them. You can see why they favour the direct route. It just might not work very well.

Take low-productivity firms. The UK certainly has a long tail of low productivity firms. And we need to increase our productivity. But as far as we can tell, our disappointing productivity growth (the rate of change in productivity) over the last decade has not been the fault of this long tail, but of our best firms, which are not doing anything like as well as they used to. This would suggest that if we care about productivity, we are better advised to help the next generation of world-beaters to grow (since we evidently managed this in the past), not to try and fix the laggards, who have always been with us. (It’s also worth noting that if we really do want to focus on the laggard firms, the most effective solutions are not very Erdingtonian — they’re about making them close or be taken over more quickly.)

Or take higher education. Number 10’s original intention in setting up the Augar Review of post-18 education was to take universities down a peg or two (financially and socially) and spend more on FE colleges, with the aim of improving vocational education and skills. This idea plays well in the pages of the Mail, but it’s far from clear that it would have the desired effect. As it happens, many of the courses at the kind of new universities Mail pundits love to hate are deeply vocational. (I’m reminded of the bachelor’s degree in Golf Course Design, long the butt of columnists’ jokes, which actually has fantastic employment rates because — who knew? — golf is big business and, thanks in part to our restrictive planning laws, the UK has lots of golf courses.) At the same time, assuming that new or reinvented FE institutions will arise to take on the economic role that many new universities play is also a big gamble. It might work. But economic thinking should remind us that new institutions are often not as effective as old ones, and that we should look before we leap.

Or take towns (or, should I say, “Towns”). The UK, like most rich countries, has a big problem with post-industrial, medium-sized towns — while some post-industrial cities can recover economically and become rich, towns lack the size that seems to matter in the so-called knowledge economy (they lack ”agglomeration economies” in the jargon). But as my friend Tom Forth argues forcefully, the way to help towns (or rather “Towns” — the lagging post-industrial places that British politicians means when they use the word) is to connect them to cities, so they can benefit from their critical mass. Wigan, a place often used as an archetype of the kind of towns the government should be helping is roughly as far from central Manchester as Esher is from central London. But most residents of Esher reckon that their town’s economic fortunes depend on two things: the fortunes of London, and how well connected Esher is to the capital. By the same logic, an economic development strategy for Wigan is really an economic development strategy for Manchester, combined with proper transport investment.

You can argue the details of all of these questions (and I’d argue back). But what I hope I’ve conveyed is that Number 10’s economic thinking, such as it is, is economic policy for people who don’t really like thinking economically. For people who are more comfortable with the command-and-control world of the Borders Agency and the Prisons Service than with the multifaceted, complex, infinitely variegated, often infuriating machine that is the British economy.

Another type of Tory economic thinking: LARPing Thatcherism

If the Tories’ current refusal to engage with the economy were limited to the Prime Minister, it might be a manageable problem. After all, all the signs are that we will have a new Tory leader in the not too distant future.

There’s a problem, however: when we look at the state of economic thinking in the wider Conservative Party, it is not clear that it is in great shape either.

The ideological rival to Erdington economics in today’s Conservative is of course free-market liberalism, what Adrian Wooldridge and others have called the Thatcherite faction. At its heart is the belief that free markets and free people make for a prosperous and happy society. So far, so uncontroversial: this is a pretty central strand of thinking on the modern Right around the world. And it is certainly an economic way of thinking about the world — much more so than Erdington Conservatism.

But as it exists in today’s Tory party, it too has something of a problem: the overwhelming feeling that many of its advocates are play-acting and position-taking rather than fighting the real battles that would matter to a modern-day market liberal.

In the Thatcher years, the Government fought a series of significant battles to make the economy freer: from ending capital controls to breaking the Miners’ Strike to the Big Bang in the City, these all representing a big shift from one sort of economy to another. These battles involved serious preparations (qv the vast coal stockpiles Thatcher amassed before the 1984 strikes) and in many cases political pain.

Today’s free-marketers talk the same language of the deregulators of the 1980s, but their actions seem much more performative. It’s less clear that they have the same stomach for a fight, or the same clarity about their targets.

After all, if we look at the economy of the UK in 2019, we see a pretty deregulated one by global standards (we’re 9th in the World Bank’s Doing Business Index, and most countries above us are minnows).

More troublingly, when we turn our attention to the remaining regulations that are widely thought to hold back economic growth, it’s not clear the free-marketers are up for taking them on — the prime example being the UK’s tight restrictions on land-use. While some Tories have made the case for deregulating land-use, notably Philip Hammond and Liz Truss, it’s not clear that anyone is yet ready for the kind of battles against vested interests — or, given the geography of British politics, that the Tories can ever implement some of the effective and popular policies that have been proposed to allow more houses to be built without alienating their voter base. (Incidentally, anyone looking for practical ideas for getting more houses built that could work politically with Tory voters should turn to the likes of London YIMBY, Tim Leunig and (Lord) Matthew Taylor.)

Equally, there is a lot of talk about increasing competition, which again sounds very market liberal, but which seems to be based on a fairly flimsy understanding of what actual levels of competition are. But this is an issue for a different blog-post…

(ASIDE: when I worked as a government adviser, I remember getting an email saying that a market-liberal minister in another department was planning to announce a big liberalising overhaul of IP law. This came as a bit of a surprise, given I was advising the minister responsible for IP and this was the first we’d heard of it. Now, the idea itself was not necessarily bad — many economists, not all of them libertarians, suggest that patents and copyrights are too strong and that loosening them would be good for the economy. What really surprised me was the apparent lack of preparation or analysis. Here was a minister suggesting trailing a major assault on a politically well-connected part of the economy without, it seemed, any kind of plan for how to implement it. Adequate preparation, perhaps, for a private speech to a think-tank, but totally inadequate if what you want is real economic liberalisation.)

In fact, the free market tendency at the moment reminds me uncomfortably of Sealed Knot enthusiasts — the guys who spend their weekends dressing up in English Civil War uniforms and re-fighting the Battle of Naseby. The uniforms are historically perfect, but fundamentally you know that it’s not live ammunition they’re firing at one another, and at the end of the day they can go back to their caravan for a cup of tea. LARPing Thatcherism, if you like.

I should be clear that this is not meant as a criticism of free-market policies. (That’s an entirely different debate; for what it’s worth, I think there’s a lot of scope for sensibly deregulating planning rules, and for making sure regulation doesn’t discourage new entrants with tech-enabled business models.) The problem is that free-market advocacy in the Conservative Party today seems performative rather than practical, and the desire to fight the difficult battles seems weak.

Conclusion

The overall situation is pretty grim for the Tories. The One Nation bit of the Tory party doesn’t seem to like thinking economically, but because it’s in Number 10 it necessarily has responsibility for big economic decisions, which end up being taken on shaky, not-really-economic grounds; the Thatcherite bit of the Tory party likes talking about economics a lot, but at the moment seems to be doing it performatively, as a sign of ideological rigour, rather than in a practical way to really deliver on its objectives. This is no way to carry on.

The point of this article isn’t to say what the Tories’ economic story should be. (I have my own answer to that, which I’ll happily inflict on anyone who’ll listen, but that’s not my goal here.) Rather, my aim is to raise questions, specifically for two groups of people.

First of all, for Tory outriders: the young, thrusting MPs, think-tanks and wonks. Now is surely the time to start thinking about the future of the economy and about specific economic policies that will improve people’s lives, and talking to voters and the wider public about them. The Long March of market liberal ideas through years of work by MPs and by think tanks like the IEA and the ASI is well known in Tory party folklore. But it is not clear who is carrying on this tradition today — and most think-tanks seem to have spent more effort in the last two years on second-guessing the party leadership or on not very impactful interventions in the Brexit debate than on coming up with new economic ideas.

The second group who needs to address this issue is the runners and riders for the long-expected Tory leadership race. Economic thinking isn’t the only correct lens through which to see the world, but it’s an indispensable one for anyone seeking to lead their country. Even if you’re of the view that economic growth isn’t the be-all-and-end-all; even if you think that people are crying out not for more GDP but for security, or community, or a sense of identity, you’ll find all the things you try to do to deliver these noble goals will come much more easily if you have an economic plan. To paraphrase Trotsky***, you may not be interested in economics, but economics is interested in you.

* I should be clear at this stage that I am not saying that economic thinking is the exclusive preserve of Conservative governments. New Labour put its own economic vision in a similarly central place, and gave the Treasury an unprecedented degree of power. And there is a strong element of economic thinking in Corbyn’s Labour Party too. John McDonnell has little in common with George Osborne, but they both have an economic vision that sits at the heart of their political world-view. But this article is about the Conservatives.)

** Two random examples: I remember a Spad complaining to me that the government was getting no credit from regional transport campaigners from a new fund to invest in local transport projects — I responded that I hadn’t even heard of the fund, and I worked for the Government. Similarly, in my bailiwick, the Government managed to commit to the largest increase in public R&D funding for 40 years, but contrived to get almost no credit for it.

*** Actually, it seems this isn’t actually a real Trotsky quote. This is always the way with quotes, isn’t it.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation. Donate £ 5 £ 10 £ 20 £ 50 £ 100 Custom amount Recurring Payment One off Monthly First name Last name Email address I accept the Terms & Conditions for CapX Donations Thanks for your support Something went wrong An error occured, but no error message was recieved. Make another donation

Stian Westlake is a former government adviser and the author of 'Capitalism without capital'

Share