14 June 2017

What Milton Friedman can teach the Tories


Support for the Conservative party among the voters of the future – the young and the university educated – is in tatters. It doesn’t need to be that way. History shows how free-market ideas can be positioned in a way that can win hearts and minds: by thinking beyond efficiency and productivity, and embracing Milton Friedman’s emphasis on personal freedom.

Friedman can hardly be said to have invented free-market thinking. Ever since Adam Smith, economists had been trumpeting the virtues of the invisible hand: the way in which leaving individuals to their own self-interest can, paradoxically, result in the common good. It is, Adam Smith argued, the incentive to make a profit that drives entrepreneurs to provide us all with the goods and services we both need and desire; the pursuit of profit was a virtue not a vice.

However, Friedman offered something new in addition to the bald economic analysis, something unique: he engaged with what it meant to be human. This approach, as detailed in his 1962 book “Capitalism and Freedom”, could appeal to the electorate in a way that the mechanical work of his predecessors, which dryly pointed to the efficiency and productivity benefits of the market, never could. Friedman knew that it was only by pulling on the heart strings that the free-market case could be won.

And so his great trick was to recognise that human beings are not like the robots in economists’ models. We are each unique, we like different things, and we frequently disagree with one another. According to Friedman, the natural state of the world was not one of peace and harmony of the kind imagined by socialists, but one in which we are constantly at each others throats.

It is a world in which, much like the peer pressured life of juveniles, we have to conform if we are to avoid persecution. The cost is great: our own sense of self. Friedman drew parallels with life behind the Iron Curtain, where Communism used fear and violence to subjugate individual to national interest.  This is a world that cannot succeed in economic terms.

Friedman not only pointed to the way in which socialism sacrificed individual freedom, but he showed how markets could help to defend it. Markets sidestep the need for a heavy-handed state to make decisions for us. Markets allow us to each make our own choices – about what to buy, where to work, and what to do with our lives.

Markets also give businesses an incentive to serve a whole variety of individual tastes; and, by giving people numerous options in terms of who to work for, markets give people a way out in the case of abuse by an individual employer. And, if anyone is in doubt of the value of the latter, then a Saturday evening sat on the sofa watching the 2006 film “The Lives of Others”, following a group of intellectuals in the East Berlin of 1984, could not be better spent. A free copy sent to every Sixth Form College wouldn’t go amiss in pointing to the human cost of Communism.

It wasn’t just Friedman’s economics, but his passionate arguments for the free market that proved persuasive. After the Great Depression of 1929, free marketeers worked hard to make the case for capitalism. They did not win, and they certainly did not stop the spread of socialism or of a compromise system in the form of social democracy.

By 1965, Keynes was on the front cover of Time Magazine and, by 1971, Richard Nixon noted that “we are all Keynesians now”. At that time, the idea that Reagan and Thatcher might make it to power on the back of a free-market ideological crusade would have seemed unthinkable. But they did so. And they did so after the arrival of a whole series of new social freedoms that had been won in the youthful society of the 1960s. This is key. Friedman’s free market agenda did not take these for granted and, indeed, promised to preserve them.

In the difficult economic times of the 1970s – an era of stagflation and of a slowdown in growth – Friedman was able to offer solutions that Keynesians could not. But it wasn’t his brutal approach to inflation and unemployment that proved capable of winning votes. It was the hope he placed in the power of the individual. This was capable – as Thatcher proved – not only of winning votes from the rich, but also from people within the working-class communities of northern England, and among the young, who wanted the power to take charge of their lives, to build new businesses and to rise up the income ladder.

What this short history of neoliberalism suggests is that even in the most difficult economic times, just as we face at present, free marketeers can win support if only they extend the case for the free market beyond basic economics; they must embrace social liberalism in a way that emphasises the power and importance of individual freedom.

The particular challenge faced by the Conservative Party today is to win back the support of cosmopolitan elites, including those of Kensington and Bath, while also attracting the new generation of voters who, with a renewed interest in politics, are coming out to vote in force.

A Friedman-style agenda of individual freedom should naturally appeal to each of these demographics. Despite Corbyn’s superficial success, these voters are not inherently socialist: they embrace free movement, free trade, globalisation and new technologies. The Millenials are what Time Magazine has called the “Me, Me, Me Generation”. That’s hardly socialist.

The problem at the moment, though, is that the Conservatives are offering little “added value” on top of the Labour Party agenda. Since Theresa May has taken the Tories to the Left in response to the social divides revealed by the Brexit vote, voters have been left wondering: why not support Labour instead? The Conservatives need to find something unique to offer voters, and individual freedom should be it.

As prime minister, David Cameron seemed to be taking us down this path. Until Brexit that is. Brexit, though, represents a major challenge to individual freedom and so has resulted in a series of lost votes from cosmopolitan liberals and the younger generation. The idea of countries working together, in their view, and keeping a check on any state who stamps on the rights of individual citizens is central to the European Union. Our rights and freedoms do not depend on the whims of our own nation state; we know that other countries are watching over us, and that we have a responsibility to watch over them. With Brexit, we have abdicated that responsibility.

Brexit also questions the rights of individuals to cross borders and to form human relationships with people across Europe. Splitting up families, or limiting the formation of future ones, and restricting people’s ability to work and live a life beyond the country into which they were born is hardly a recipe for individual freedom.

While the older generation might be used to a circle of family and friends all of whom originate from a single European state, that is far from the case with the younger generation. It is telling that the Brexit debate was couched around the rights of the nation state, not the rights of the individual.

But the shock election result means that the chance of a soft Brexit is again on the cards. The downside, however, is the need for a partnership between the Conservatives and the Democratic Union Party of Northern Ireland, whose stance on women’s rights and LGBT rights is about as far from socially liberal as one could possibly be in the context of a modern day Western democracy.

If they are to rebuild their success, Conservatives (and free marketeers more generally) need a recipe that can pull on the heart strings. That means engaging once more with what it means to be human, re-embracing Friedman’s freedom agenda. That in turn means treading very carefully when it comes to Brexit and the DUP. And it means that the future of the British Conservative Party is to be found in Ruth Davidson and the youth of today.

Dr Victoria Bateman is Fellow in Economics at Gonville & Caius College at the University of Cambridge, and Fellow at the Legatum Institute