6 June 2017

The next PM must see off the spectre of wealth destruction


A letter to the future Prime Minister

Dear Prime Minister,

Congratulations on winning the election.

With it comes the obligation to lead the British people through what could very well be one of the most important five year periods in the nation’s history – certainly the most important since that last great gathering of national spirit in pursuit of an overwhelming challenge, the Second War. As was the case then, we simply cannot and must not fail.

In many ways, you will need to have a war-time mentality, not because Europe is the enemy, far from it, but because the spectre of wealth destruction, and the possibility that millions of Britons will be pushed into poverty is stalking our shores. The UK and the EU, as well as the other countries you will be negotiating with in the next parliament, are engaged in a mutual endeavour to defeat this common enemy.

Britain will soon have its own independent trade policy, but how that trade policy is expressed depends on who we are as a nation. What you do domestically very much determines what you can do externally with the many trading partners that are seeking out the UK for potential agreements.

In the next five years, your goal must be to create an aspirational society, one where you succeed based on what you know, not who you know; a society where people succeed based on their own hard work and good ideas, and not their ability to manipulate governments to protect them from competition. The people in that society must benefit from equality of educational opportunity, so that what they know is not pre-determined by where they come from.

Our society is comprised of the billions of human interactions that occur within it every day, and it is crucial that nothing gets in the way of people coming together to meet each other’s needs in these transactions.  If each of these transactions is governed by the aspirational principle, then wealth – the realisation of ideas – is created. The economy will grow, and yes, the Government will have money for public services and the like, but something much more important will have happened. Individual people will realise (because they will see it) that nothing stands in the way of their success: if they are born poor, they don’t have to die poor.

Competition lies at the heart of the aspirational principle – allowing the market to function in ways that lead to lower prices, more choice and more supply.  It is competition that enables the trains to run on time, heating bills to be lower, and poorer people not to have to make choices between food and fuel.

This is why monopoly, whether it is a government monopoly or a private one, has been referred to as an “evil”, a strong term for mild-mannered economists to use.  It is evil, because a lack of competition raises price, lowers supply, forces poorer people to have to choose between basic commodities and pushes them deeper into poverty. If your policies push people into poverty, they are immoral no matter how noble their intent.

You should ensure that your domestic policies allow competitive forces to determine the outcomes of these billions of transactions, especially in the key inputs of the British economy. In this way, the force of competition can be unlocked to lower the key costs that our businesses, farmers and consumers face – land, labour, energy and capital. Then you can break down the barriers that British people face in doing business with other countries through trade agreements. This is good not only for Britain, but for the world.

The world you will face is itself beset by dangerous currents. Protectionism and populism have tapped into a deep fear in the world that somehow the global economic system is unfair, rigged against people. Just as you must lead the British people, Britain itself is being called to global leadership. The world expects Britain – the fifth largest economy in the world, one of the biggest exporters of services, and sites for foreign investment – to lead.

The world expects Britain to be a force for open trade and competitive markets as it has been before. This is much more important than partisan politics. In the 19th century, it was the radical manufacturers from Manchester who were pitted against the Tory landowners, and who gave birth to the modern free-trade movement.  In the 1970s, both Tory and Labour governments combined to reduce Britain to developing country status, the sick man of Europe who had to go cap in hand to the IMF.

We must not forget the three-day work week, with a need to rely on candles at either end of the week because electricity was rationed, or the winter of discontent with rubbish on the streets. The only way to ensure that we don’t return to that is to embrace policies that allow the force of competition to do what it does best – to create wealth, and to grow the economy.

The world is sadly littered with examples of where the force of competition has been thwarted – Argentina was once the sixth biggest economy in the world, but decades of Peronist policies destroyed wealth and pushed its people into poverty.

Venezuela, which had so much potential after the market opening in Latin America, has had its economy obliterated by Chavez and his followers. Castro’s Cuba has languished in the 1950s, while the rest of the world has moved on.

In Africa, huge amounts of wealth are daily destroyed by bad government policies that replace the competitive forces of the market with state monopolies and crony oligopolies that choke off the incentive for others to innovate. It matters not whether the intention was noble – almost always terrible economic policies have been implemented with the noblest of intentions. Ultimately, future generations will weigh you in the balance, based on the impact of your policies and not the nobleness of your intentions.

We have reached an unfrozen moment in British history. What you do with that moment will be a legacy that will affect not only this generation but many, many to come.

Good luck.

Shanker Singham is Director of Economic Policy and Prosperity Studies at the Legatum Institute