Meet­ing the mo­ment

The Tories need some fresh ideas to re­vive the econ­omy af­ter Covid-19

The Daily Telegraph - Business - - Front Page - Ryan Bourne

Politi­cians rarely let a cri­sis go to waste. But even by their stan­dards, speeches by Michael Gove, Min­is­ter for the Cab­i­net Of­fice, and Boris John­son, the Prime Min­is­ter, this past week took some lib­er­ties in claim­ing Covid-19 jus­ti­fied their long-de­sired pol­icy agen­das.

Gove made the case for an ap­proach to gov­ern­ment in­spired by Amer­i­can “New Deal” pres­i­dent Franklin D Roo­sevelt. In Gove’s in­ter­pre­ta­tion of FDR’s legacy, gov­ern­ment should be an­i­mated by the con­cerns of the “For­got­ten Man,” while con­stantly ex­per­i­ment­ing and eval­u­at­ing the ef­fec­tive­ness of poli­cies. John­son in­voked the Roo­sevel­tian spirit more di­rectly in the call for a state-led eco­nomic re­bal­anc­ing, with a Con­ser­va­tive “New Deal” to “level up” the coun­try via in­vest­ment in pub­lic ser­vices and in­fra­struc­ture.

Now, it seems con­tra­dic­tory to de­mand ad­her­ence to ev­i­dence while tak­ing in­spi­ra­tion from a US pres­i­dent who presided over weaker eco­nomic out­comes than his Thir­ties Bri­tish con­tem­po­raries. It’s odd to ex­tol the virtues of eval­u­a­tion and then ig­nore the lack of long-term pro­duc­tiv­ity div­i­dends from New Labour’s “in­vest­ment” or Ja­pan’s Nineties in­fra­struc­ture drive. It’s bizarre to pre­tend this agenda is “new” when most ideas have been pre-an­nounced.

But to ques­tion the Con­ser­va­tives here on em­pir­i­cal grounds is to mis­un­der­stand what is re­ally go­ing on. In­vok­ing Roo­sevelt was po­lit­i­cal fram­ing. The mes­sage was that the Con­ser­va­tives de­sire eco­nomic trans­for­ma­tion, while sig­nalling firmly that their agenda isn’t the Tory party’s of the Eight­ies. For all the ar­gu­ments over the de­sir­abil­ity and how elec­torally sen­si­ble this Left­ward shift on eco­nomics is, the pack­ag­ing is more about rank elec­toral pol­i­tics than any ev­i­dence ba­sis for the ideas.

That’s not to say all of the pro­pos­als were statist or, in­deed, bad. Plan­ning re­form is a long over­due pro-mar­ket pol­icy that would ben­e­fit the poor. Gove is right about civil ser­vice group­think, in­er­tia and, in prin­ci­ple, the need for de­cen­tral­i­sa­tion of power too. No, the real prob­lem is the glid­ing over of the more im­me­di­ate eco­nomic down­turn at hand, pre­tend­ing that some­how what the Con­ser­va­tives in­tended to do any­way is si­mul­ta­ne­ously the an­swer to our short-term woes. It would be in­cred­i­bly con­ve­nient if an un­ex­pected, virus-caused de­pres­sion of ac­tiv­ity in in­dus­tries re­quir­ing phys­i­cal in­ter­ac­tions led one to the ex­act same pol­icy agenda as for tack­ling ma­jor struc­tural in­equal­i­ties across the coun­try. Yet that is what Boris would have us be­lieve. He warned we are in the pe­riod be­tween the light­ning flash and the thun­der­clap, un­sure as to the de­struc­tion we will see as lock­downs are lifted. Yet we are told that Covid-19 high­lights the need to “dou­ble down on lev­el­ling up” any­way, with large state in­vest­ments on ev­ery­thing from HS2 to so­cial care “be­cause that is what the times de­mand”.

But that is clearly not what these times de­mand. The im­me­di­ate eco­nomic cri­sis is not a de­mand-led re­ces­sion like the Great De­pres­sion, not akin to a re­build­ing ef­fort af­ter in­fra­struc­ture de­struc­tion in war, nor the re­sult of pub­lic ser­vices be­ing starved of funds. It is driven by an un­prece­dented change in con­sumer be­hav­iour and how busi­nesses can op­er­ate. A pathogen has dis­rupted re­la­tion­ships be­tween em­ploy­ers and em­ploy­ees, re­tail­ers and sup­pli­ers, and cus­tomers and firms, with lay­offs and busi­nesses col­laps­ing as sup­ply and de­mand con­di­tions al­ter.

The Prime Min­is­ter has no idea yet whether this cri­sis makes the busi­ness case for HS2 stronger (if air travel con­tracts per­ma­nently) or weaker (if re­mote meet­ings be­come nor­malised). Min­is­ters have no spe­cial in­sight into how busi­nesses will re-eval­u­ate reshoring af­ter dis­rup­tions to their sup­ply chains, or to where. The wis­dom of most other gov­ern­ment in­vest­ments is largely in­de­pen­dent of these short-term pan­demic prob­lems. To pre­tend then that Covid-19 it­self shows the eco­nomic need for this state-led re­bal­anc­ing ef­fort is the worst form of mo­ti­vated rea­son­ing.

Far from a gov­ern­ment-led “build, build, build” agenda, we need a mar­ket-led “adapt, adapt, adapt” one. A cin­ema and sur­round­ing restau­rants strug­gling with so­cial dis­tanc­ing and de­pressed de­mand are not much helped by in­vest­ment in a nearby by­pass. Nor, as it might have done in some cases dur­ing Thir­ties Amer­ica, would that road build­ing mop up such work­ers laid off in leisure and en­ter­tain­ment in­dus­tries. The days of the shovel are long gone, as would the threat of the virus be by the time such projects ac­tu­ally got off the ground.

Gove ex­tolled the need for the Gov­ern­ment to “learn quickly, ad­just and re­spond”. But the best eco­nomic mech­a­nism we have for rapid ad­just­ment to changed cir­cum­stances is, in fact, a mar­ket econ­omy, driven by profit and loss. As lock­downs end we need busi­nesses and work­ers to re­or­gan­ise ac­cord­ing to their new re­al­i­ties. “The times de­mand” poli­cies that: make work­ers cheaper to hire, re­move bar­ri­ers to chang­ing jobs, en­cour­age reskilling or re­train­ing, in­cen­tivise pri­vate in­vest­ment or in­no­va­tion in mak­ing ex­ist­ing busi­nesses safe, al­low premises to be re­pur­posed, and re­move bar­ri­ers to en­trepreneur­s find­ing new ways to serve our wants and needs.

Crises re­quire new think­ing. What you re­gard as op­ti­mal in nor­mal times is not when un­usual emer­gen­cies hit. The Gov­ern­ment un­der­stood this with the fur­lough pro­gramme. But now they ap­pear to see the pan­demic as a mere in­con­ve­nience to get­ting on with their old agenda, with lit­tle thought given to the specifics of the mo­ment. The fact that the Gov­ern­ment saw sus­pend­ing Sun­day trad­ing laws as go­ing too far, but think state-led re­bal­anc­ing of the coun­try’s econ­omy should be­gin now per­haps best ex­em­pli­fies the odd mix of hubris and mis­di­ag­no­sis.

In his best speech line, Gove ad­mit­ted: “we need to un­der­stand that com­plex, adap­tive sys­tems de­mand re­spect­ful at­ten­tion, not glib as­ser­tions of mas­tery”. He was talk­ing about the bio­sphere. But the Gov­ern­ment would do well to heed the les­son on our cur­rent eco­nomic plight.

The PM ap­pears to see the virus as a mere hin­drance to get­ting on with his old agenda, with lit­tle thought given to the specifics of the mo­ment

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