15 July 2015

Socialism is a bankrupt ideology

By Luke Johnson

Liam Byrne, the Labour Chief Secretary to the Treasury, said it all in the notorious 2010 note to his successor: “There is no money left.”

Socialists in countries like Britain thrived during the post-war years when the world was a much less competitive place. Their self-indulgent fantasies appeared affordable while giant nations like China were hobbled with communist regimes. Such totalitarian societies were essentially closed to international trade. Effectively the world economy was firing on half its cylinders.

But since China, India and other major countries unleashed the entrepreneurial spirits of their citizens starting in the 1990s, their productivity and global impact has increased vastly. Embracing markets, incentives, private ownership and growth, China in particular has become a manufacturing and exporting powerhouse. Its efficiency has laid waste to whole swathes of industries in the high cost west, creating huge challenges for old economic models, welfare systems – and organisations like the Labour party.

Labour relied on rich nations like Britain being able to afford ever more progressive systems of redistribution. But globalisation, modern logistics and automation have made such schemes unworkable. Ageing populations require more healthcare and much more pension provision, while citizens today have significantly inflated expectations about their standards of living.

The left assumed business in Britain would continue to pay high taxes, high wages, high property costs and remain competitive with Asian rivals. But that model is broken. Industry here fights hard to remain in the game, and cannot do so in a heavily unionised, highly regulated, excessive taxed environment. Of course Labour has never really understood free enterprise, and many on the left still think economics is a zero sum equation. They fantasise that there are tens of billions of tax being avoided which can somehow be captured from the capitalists to spend on welfare. Such ideas are a ludicrous myth.

At heart capitalism is about opportunities and growth. Individuals can start businesses and get rich – and in so doing create jobs, generate taxes and help pay for welfare and increase standards of living. There is no comparable mechanism whatsoever within socialist philosophy which encourages private citizens to take risks with their careers and capital to develop enterprises, innovate and expand an economy. Instead the high command is occupied by those that seek status within government institutions, who claim to know best and want to control ever more aspects of our lives.

In Britain 85% of the working population are within the private sector. Most understand well that big government crowds out wealth creation. They know that generally citizens spend the money they earn more wisely than government spends the taxes it extracts by compulsion. Ultimately the state cannot create jobs or exports or net taxes: the private sector must do that. But Labour is almost exclusively focused on the public sector. This is partly driven by the fact it is very largely funded by unions – and they are overwhelmingly representative of state workers.

The narrative of the left is a pessimistic one: they argue that the current economic system is broken, inequality is rising, poverty is endemic and ‘austerity’ is crushing the spirits of millions. They say that ‘neo-liberalism’ is the cause of most of the world’s miseries – and fall back on vague collectivist theories to find the solutions. In fact British austerity is largely a piece of fiction: according to HM Treasury’s Budget, expenditure in 2010/11 was £697bn; in 2015/16 it is forecast to be £743bn – an increase of almost £50bn. Public spending has grown – it has not been cut.

Gallup undertakes an annual survey into what people all around the world really care about: and a significant majority say their greatest priority is having a full-time job. The left cannot bear the idea that unemployment has fallen substantially in the last five years, that the numbers of those in employment have risen to record levels, and that the proportion of the UK population claiming out of work benefits has fallen to its lowest level for 35 years. All these improvements are thanks to the expansion of the private sector, encouraged by government initiatives which have spurred self-employment and enterprise.

‘Progressive’politicians have no idea how to relate to entrepreneurs because the vast majority of Labour MPs have spent their entire career in the public or non-profit sectors. They don’t understand business or the profit motive – and tend to be highly suspicious of both. They do not know how to encourage enterprise or stimulate private sector investment; they cannot credibly talk about wealth creation because they spend their time demonising wealth creators.

Following the 2008 financial crisis, the left thought the electorate would reject free markets and, in Miliband’s words, see enterprise as predatory. But they did not. People understand that commerce drives the economy, generating inventions, jobs and taxation to pay for necessary government. Every single socialist country, from Venezuela to Cuba to North Korea has failed. It is a doomed economic model which leads to corruption, stagnation, and misery. The Labour party must embrace free enterprise and capitalism, or remain a party without a viable economic philosophy, and no practical basis on which to govern the country.

‎Luke Johnson is a leading entrepreneur.