The Conservative crisis of capitalism

Do Conservatives still believe in capitalism? Or to put it less starkly, do they still have faith in their economic model?

For decades, Tories were unified behind Thatcherite economics that preached free markets, private enterprise, lower taxes, fiscal prudence, deregulation and globalisation. Free trade was an unquestioned good. Oligarch money was welcome in London, China was a growth opportunity. This was the model that facilitated their aspiration society. Then came the financial crisis and Brexit.

Recent days have seen the chancellor’s Mansion House speech, the launch of Liz Truss’s Growth Commission to champion the free-market policies of her brief premiership and interventions by other leading Tories. None of them are saying the same thing.

Most striking are the prominent Conservatives rubbishing their old model. In a piece headlined “Capitalism as we know it has failed”, Theresa May’s former chief of staff, Nick Timothy, argued that the UK economy created a nation of “serfs to debt, trapped by low pay and bloated assets”. Britain, he wrote, had been hooked on cheap credit and ripped off by financial engineering. Michael Gove, levelling-up secretary, laments a “culture of dutiless rights and commercial calculation”.

Meanwhile, Prime Minister Rishi Sunak, trapped by inflation, sticks to a Treasury orthodoxy that offers no alternative path out of the wider malaise. Resigned to election defeat, Tories are now battling for the future of their party. But, Truss aside, what is missing from most is a plan to prioritise growth.

Boris Johnson did offer a new path which addressed the hollowing out of the state. The economic shock of Brexit would be countered by substantial investment in skills, infrastructure, science and public services. But this was a good-times project. When the pandemic hit, the strategy was lost in the rubble of wrecked public finances. There is no unifying Tory plan for the bad times.

Truss’s brief premiership asked the right questions on the UK’s anaemic growth but settled on disastrously flawed answers. Even so, she continues to preach the same agenda of low taxes, looser immigration controls and aggressive planning reform. This is the small state which many Tories once thought they believed in. But what distinguishes this group is how it has now shrunk.

Against them stand more statist Conservatives. At one end are the New (or National) Conservatives, mostly red-wall Tories. They mistrust multinationals, dislike globalisation and want to see a more self-supporting economy with traditional social policies built around low immigration and tax breaks for stay-at-home parents. What they do not offer is a strategy to pay for this. 

A milder version are what one Tory calls “national community” Conservatives. This group coalesces around Gove, who espouses an economic nationalism which provides “productive work” for all citizens, reduces inequality, builds resilience and fosters “patriotic renewal.” His version of government is “active not absent”.

The message from both Timothy and Gove is that traditional Tory economics, from Thatcher through to David Cameron and George Osborne, have failed Britain. Brexit was the reaction to that failure. But since no faction wants to raise taxes, they need a growth plan to fund their active state. Without an economic model their political theory also falls — if the private sector cannot meet the aspirations of Tory voters, they will expect the state to step in, as seen with the demands for help for homebuyers. 

Attempting to hold the line between these conflicting visions are Sunak and his chancellor, Jeremy Hunt, the latter being perhaps the last remaining cabinet advocate of “Osborneomics”.

While Hunt announces policies to boost investment in the UK, economic nationalists back regulation that deters overseas businesses. The mantra of protecting strategic industries leaves the UK less attractive as a base for start-ups and Brexit has diminished its allure to overseas investors. Planning reform is blocked by Nimby MPs. Amid a party of China hawks, the pair have fought to retain a trading relationship with Beijing, a balancing act which leaves the UK with no coherent strategy towards the world’s second-largest economy.

The upshot is an inconsistent mess. The battle with inflation is no longer enough to unify Tories. The only common ground is around reskilling the British workforce. The best bet seems the Johnsonism they can no longer afford, which remains in microcosm in the active approach of metro mayors such as Andy Street and Ben Houchen. 

This is not just a problem for British Conservatives, but for rightwing parties across the west. The collapse of their economic model has seen them retreat into nativism, traditionalist social policies and cultural conflicts.

All one can say for sure is that today’s Tories want a new form of capitalism — one they cannot define but which is not as open and free-market. And if the new economic model is interventionist and social democratic, other parties can offer that with more conviction. Hence the need to marry it with nationalism.

For 40 years, the Conservatives’ appeal was founded on a theory of the political economy they could argue raised the living standards of the population. Now there is no model, no map. There is only a gap and a battle of ideas that no one, least of all the country, appears to be winning.

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