Capitalism, not socialism, will fix this mess
It’s time to fight back against the ludicrous claim that Covid has exposed the failures of the free market
Party conferences during Theresa May’s era marked the stages of a prime minister learning the errors of her statist ways. Gradually, her attacks on the “unfettered free market” became positive comments on the role of markets in driving prosperity. Still, the rhetoric never quite matched the policies: from dithering on the housing crisis to the icy treatment of foreign talent, May’s tributes to capitalism were a poor guise for her interventionist instincts.
The same cannot be said of her successor. Unlike May, Boris Johnson has never been afraid to promote his pro-market, pro-entrepreneurial philosophy. By no means is he a purist – he is often led astray by the glamour of a grandstanding state project (how else could HS2 survive?). But he recognises the private sector’s role in funding them. His Chancellor, Rishi Sunak, is touted as one of the fiercest defenders of the free market in the Cabinet.
Still, when watching Sunak’s speech at the Tories’ digital conference yesterday, you couldn’t help but feel it was an ode to interventionism. The Chancellor dutifully paid lip service to businesses and entrepreneurs, pledging to create a better environment for them. But the real hero of the Covid-19 crisis seemed to be the state. It was government that stood ‘‘between the people and the danger”, government that spent the money on subsidies and bailouts, and government which will do everything to “create, support and extend opportunity”, especially through its job schemes. The silver lining of this horrendous year, in Sunak’s words, was that “government ceased to be distant and abstract, but became real, and felt, and something of which people could be proud”.
The irony is that this Covid world mirrors what happens when governments try to control economies: strict rules, limited options, mass closures and redundancies; the largest economic contraction since the Great Frost of 1709.
That’s not to say the economic actions of the Treasury over the past six months have been wrong: the consensus of economists on the Left and Right is that a temporary spending spree was necessary to handle the effects of the pandemic. The economy needed to hibernate, and Sunak came up with one of the best schemes in Europe to allow it to do so, without any threat of nationalisation. But what lies ahead does not inspire confidence that state intervention creates a more prosperous world.
Still, many powerful people would try to frame it as such. In his latest encyclical published on Sunday, Pope Francis suggested that the “magic theories” of free markets and capitalism had been undermined through our experiences of the pandemic. The critique comes at an interesting time, as the free flow of goods and services was largely suspended, and even made illegal, at the height of the pandemic. It wasn’t free-market liberalism but the lack of it that made this world a poorer place.
Of course, critics of capitalism existed long before this virus, and will grasp at any straw to reject its long list of successes. But this makes it even more important that prominent leaders with liberal inclinations recognise the market as our short and long-term solution for recovery, by creating conditions in which enterprise can start to flourish again.
Even with the Budget delayed, the Chancellor should not postpone the supply-side reforms that have a proven track record of boosting growth. Businesses that adapted to the crisis by moving online shouldn’t be punished with a digital services tax for keeping those staying at home supplied and entertained. Employers should not face a financial burden for hiring new employees, which requires reform or suspension of their National Insurance contributions. Workers should get to keep more of their own income, especially as they seek to pay back loans or rent holidays that racked up at the height of the pandemic.
The battle between free markets and socialism that played out in the election last year felt like the battle of a generation. As significant as it seemed then, we could never have predicted just how important it would be, mere months later, to have leaders who believe in the power of markets and enterprise. Britain is lucky to do so. It must start putting these beliefs into actions.