Among the many interesting discussions at this year’s Centre for Policy Studies Margaret Thatcher conference on Britain and America was a panel on ‘The Anglo-Saxon Model: In Need of Repair?’, chaired by Anne Applebaum and featuring Megan McArdle, Alastair Heath and Ryan Streeter. The conversation went to the heart of the current economic and political settlement on both sides of the pond.
Heath, editor of the Sunday Telegraph, argued that those of us who support what we might broadly consider democratic capitalism have been failing to make the case for free markets recently, or have allowed the brand to become unfairly tarnished.
It’s true that few know about the extraordinary gains that the global market economy has brought to the emerging world. But at home, the free-market has been tarnished by the financial crisis. Some argue this is unfair for a simple reason: the banking system is about as far away from a free-market as it’s possible to get. It requires government licenses to enter, relies on government deposit insurance to survive, and at its heart sits a central planning authority which sets its fundamental price: the interest rate. Its profits are private and its losses public.
Heath also referred to the ill-effects of the prolonged expansionary monetary policy that followed the crisis. Again, to the extent that the policy has hurt savers, encouraged indebtedness, inflated asset prices, and misallocated resources, free-marketeers might argue that these are the side-effects of an interventionist agenda, not the outcomes of market processes. Free market reform in banking and money might have saved us from these outcomes, but there is almost nobody making the case for them.
If Heath told us that we need to make a case for the market again, Megan McArdle, a columnist for the Washington Post, detailed what that case might look like. She said that the political parties have been captured by elite interests, something that all three panellists agreed on. For the free market agenda, she said, this has meant an emphasis on tax cuts for high-earners, and mass immigration, rather than on the concerns of ordinary people.
No doubt the former were necessary in the 1980s, but marginal rates at the top are probably low enough now and the gains from further cuts are probably small: we need much more. Tax cuts on the lowest earners are a different matter: a CPS paper by Tom Clougherty made a convincing case for those recently. And of course, tax reform, in pursuit of simplification and efficiency even at the same yield, is urgent.
On the latter: we’re all aware of the gains that can theoretically be made from labour market liberalisation via open borders. But the policy is unpopular. The public have concerns about the rate of cultural change, and have a right to trade-off efficiency for conservatism. Heath made the point that historically elites have led the way on many “progressive” reforms, like the abolition of the death penalty, and the public have eventually caught up. On this one, they’re not catching up. They don’t want it. We might need to learn to accept trade-offs between efficiency-seeking liberalisation and conservatism better.
But more than that: we should focus on free-market policies that are both welfare-improving and popular. That is, we should find a free-market agenda for ordinary earners. Thatcher herself described capitalism as the “creed of the common man”.
McArdle and Heath both agreed that first and foremost property ownership must be brought back within the reach of ordinary earners: of financial assets, but especially of houses. The planning system must be liberalised to allow building to increase the supply and reduce the price of housing. The current system drains income away from productive employees into the land, especially in the cities. Again, the public consider this to be a market failure, but the high price of housing is almost entirely a result of government policy.
McArdle also called for reform to occupational licensing, though this is mostly an American concern. We might instead concern ourselves with professional rent: complexities of the law and taxation, for example, have grown over time, and are a drag on the productive sectors.
More broadly, there was a consensus on the panel that we should focus less attention on the graduated professional class (who are drifting away from the centre-right anyway). Not to abandon them, but to think about groups other than them.
The AEI’s Ryan Streeter argued that we need to rediscover dynamism outside of high-technology firms: he argued, as per Edmund Phelps and Nassim Taleb, for small-scale entrepreneurialism, or “tinkering”. And everybody agreed that we must improve our educational offering to non-graduates, specifically by improving technical and vocational education. Heath argued against the rigidity wrought by a fake meritocracy governed by qualification paperwork: people must be able to climb near the top of the income distribution without being graduates from competitive universities, and the gap between the professional class and everybody else shouldn’t be quite so large. The concerns of flyover country must be addressed.
Having identified what a popular market-based economic policy might look like, the panellists were asked why the political system doesn’t seem capable of delivering it. On this, Heath was pessimistic. He believes that the British settlement is broken, and favours more direct democracy as a solution. Streeter argued that the political parties have become weaker, and that power has been concentrated in the leaders who are more amenable to vested interests. He argued that our institutions have become platforms for virtue-signalling, and that the earthlier concerns of ordinary people don’t reach them.
McArdle noted the empirical relationship between revolutions in communications technology and actual revolutions following shortly afterward. She believes we’re in the midst of one such brought about by social media, which has been a platform for the left-behind to effect political change. But she believes things will settle down: they are a bit broken, but they have been before, and the liberal model is robust because it can experiment and eventually find solutions. Heath argued that if we are to defend the model against, say, the Chinese alternative, then the technocratic consensus amongst elites in the West must be abandoned for a renewed faith in the superiority of democracy and decentralisation.
Lastly, the panellists also discussed what the public do and don’t care about on a slightly deeper level. Streeter gave us some insights from social research: primarily, people want to be left alone to pursue their own objectives. They aren’t that bothered about inequality in the sense of “the one per cent”, but they do compare themselves to their neighbours. They identify with their community and their towns – and are twice as likely to do so as they are to identify with their fixed characteristics, such as their racial identity.
The discussion set out an electable conservatism: an acceptance of a trade-off between elite free-market priorities and conservation; a prioritisation of popular free-market reforms, especially those would reduce the price of housing and spread ownership; a willingness to prioritise the genuinely entrepreneurial and productive; a turning of our attention to the non-graduate class, their education, training and prospects; and a re-emphasis on the conservation of community and place.
You might say this agenda is a balance of conservatism and popular capitalism. And the CPS might say this is the case it has made all along. But the discussion between the panellists was so brilliant that I strongly urge readers to find it on the CPS channel on YouTube to see for themselves.