This week is my first as the new Director General of the IEA. It has turned out to be one dominated by overseas news - Venezuela, Greenland, NATO, Ukraine. I don’t need to comment on the substance of any of this for one point to be clear: the relatively marginal position of the UK in these great international events. Yes, we have committed to troops on the ground in Ukraine, though where those troops are going to come from, and for how long, is not entirely clear. We have signed a declaration on Greenland. And so far at least we haven’t plucked up the courage to say anything much on Venezuela.
For someone like me, who joined the Foreign Office in 1987 when the Reagan-Thatcher alliance bestrode the world stage, and reached its upper echelons at the time of the Bush-Blair partnership and the British involvement in Iraq and Afghanistan, this takes some adjusting to. Whatever one thinks of British foreign policy over this period, we at least counted for something. Sadly, that’s no longer true.
There are many reasons for this, but one very important one is relative economic decline. In the end a country’s ability to influence international events depends on its economy. A strong economy funds hard power. It is also an intangible asset. If your country seems to be doing well, and others want to imitate and learn from it, that also means they take you seriously. If you’re a superpower, a China, a US, even an India, then of course that doesn’t matter so much. But if you are in the mid-league, economic success matters. If you are relatively declining, if your model isn’t attractive to others, then you just don’t count for as much. Not only are your people poorer at home, your country is pushed around abroad too. Decline of all kinds becomes a habit and the learned impotence so visible in many of our elites in recent years becomes all too clear.
That is the position Britain - and indeed many European countries - has got itself into. For a long time the country has been living off the fat of the Thatcher and Major reforms. That was enough to carry us through most of the Blair years despite the poor policies of much of that period. Thereafter, the financial crash and all the really bad economic ideas that followed made things gradually worse until we reached the current point, one of virtually no growth per capita and a set of apparently unresolvable economic problems.
This fact does, finally, seem to be starting to sink into the political and economic debate. Although there is a “degrowth” movement, it doesn’t seem to have really taken root, and its more obvious manifestations such as a fanatical approach to net zero are being questioned as never before. But with one exception, the broader economic “offers” being put before the British people are still highly collectivist in nature and are not yet capable of dealing with the country’s real underlying problems.
The exception is of course the model which the IEA stands for: that of free markets and freedom. I’ll come back to that. But meanwhile what else is on offer?
The economic visions on offer
Fantasy Leftist
Well first there is the “fantasy leftist” model best represented by the Greens and Zack Polanski, but which reaches into the left of the Labour party and the media commentariat. Internationally the new Mayor of New York, Zohran Mamdani, stands for it too. It’s an economic approach based on ideas like modern monetary theory, the view that we can just print money to pay our bills, or the view that a wealth tax is a financial panacea to all our ills. It involves mass immigration, rent and price controls, free public transport, and state-run shops and restaurants. Eventually it will involve expropriation and state control over nearly everything to make it work - after a fashion. It may be cool, sexy, and fashionable for now - but look at Venezuela if you want to see where this ends up.
Blue Labour
Second there is what might be described, somewhat imprecisely but conveniently, as the “Blue Labour” model. This has an appeal beyond that particular (and relatively small) part of the Labour Party out to the communitarian voices in all parties. Trumpism, or maybe JD Vance-ism, picks up elements of it too. It involves a deliberate focus on reindustrialisation, on old-style union-management consultation, and on the strategic use of tariffs to build up industry and protect strategic interests. It emphasises national self-sufficiency and resilience, verging for some into war Keynesianism through boosted defence spending. It believes in nationalisation and, in Britain anyway, has a strong sentimental attachment to the world of Clem Attlee and even to the collectivism of the Second World War.
This model is perhaps not quite so damaging as fantasy leftism. It doesn’t have the same capacity to completely wreck a country and it does at least believe that a country is a meaningful thing. It doesn’t pretend that you can have something for nothing, and it does respond to genuine political currents and real needs. And to be fair it is often justified more on social cohesion than purely economic grounds. But still, it has been tried and has failed. Its main weaknesses are that it ignores all economic experience in important areas such as labour markets and international trade; it has only a subordinate place for markets in its thinking; and it sees government involvement as central to any important decisions on anything. Trying this is going back to the past not looking to the future.
Establishment Economist
And finally there is what one might call the “establishment economist view”, the consensus view of the economy as held by most of those who staff government departments, the Bank, the OBR, and the big think tanks like the IFS and the Resolution Foundation. This view is so deeply embedded that it is often implicit rather than explicit in discussion. It might also be called “Brownism”, as it began to conquer the institutions while Gordon Brown was Chancellor - and indeed in many ways we are still living in Gordon Brown’s world.
Key elements of this philosophy are that Britain suffers from underinvestment and that an expanded public sector and ‘active state’, driven by higher taxation and / or public debt financing, is the best way of changing that. Its proponents believe that spending on R&D, education, and infrastructure will help improve Britain’s public capacity, and that public investment in public projects more broadly will boost innovation. It sees a role too for an explicit industrial strategy driven by parastate organisations like Great British Energy or the so-called National Wealth Fund. And it is very worried by questions like inequality or intergenerational friction, and thinks the government has a role in managing wages and prices to deliver a “correct” distribution of income across the whole economy.
All this can sound quite appealing if you don’t mind giving over large amounts of your money and personal autonomy to the government. Both are in short supply in the public sector in the first place, and perhaps this is why the model has proved so durable across establishment circles, though its need for expanded state power to make it work is surely also part of it.
The problem here is that it has simply not delivered. We have been operating on something like this model for the last couple of decades and the results are what we see around us. This approach gives relatively little space to market dynamism, spontaneous order, or organic innovation. It is self-aggrandising as the problems it generates can only be solved, in the minds of its proponents, by more government. Over time it discourages entrepreneurialism and creates incentives not to work, the resultant difficulties being solved by turning to mass immigration. And its advocates simply refuse to engage with issues like crowding out and the deadweight costs of vast public sector transfers.
Why these models matter
Because these models are all opposed in different ways to that of freedom and free markets they are often blurred together. In a way that is natural: they aren’t all exactly left-wing but they are all in different ways statist and collectivist. But I think it is important to distinguish them because the means to tackle them are also distinct.
The best remedy for fantasy leftism is ridicule: its exponents can rarely even explain it coherently, its intellectual underpinnings are weak in the first place, and where it has been tried the consequences have been disastrous. But the other two models need a different critique. Blue Labourism is based on a specific set of values and is best criticised on the basis of its actual track record where tried. And the establishment economist view is often not critiqued at all, being seen on many business pages as a set of obvious truths or “just the way things are”. It needs to be made visible and it then needs to be the subject of a serious intellectual assault from those who see things differently.
The correct way to improve this country’s prospects is of course different. It is to return to a policy of freedom and free markets, of lower tax and spend, of having confidence in individuals to spend their own money best, to return to trust in the power of incentives and of entrepreneurialism. That is what the IEA has stood for over 70 years. Criticising the bad ideas and supporting the good ones, winning the battle of ideas: that is what we have done successfully in the past, and will certainly carry on doing, now and into the future.
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A very interesting viewpoint. I happen to agree with the free market low tax and spend attitude. But I fear without a money supply that will never happen.
Entrepreneurship as you mention, is never going to get anywhere without a free flowing money net supply.
You politicians and economists alike tend to think that money makers given the rope to make profits will be our saviour. But increasingly we are told they are leaving in droves and taking their money with them!
We are also told that money makers, entrepreneurs, are wealth creators. But are also told they are wealth takers!
My view is they are both. They create ways to draw money to take out the system only to hold on to it. In do doing they, make the money supply devoid of exactly what is needed.
In my opinion, the ‘accountants’ way of two sided bookkeeping is as much as politicians can cope with. This inability to think in the round, to understand money has to flow back around and in what time, four dimensional thinking is lost on them. This has perpetuated in the ‘Thatcherite’ doctrine, wrongly Lorded by many since in a ‘household budget’ mentality of ‘cuts’ when the money isn’t there!
When, instead of cutting your cloth to suit the tax return, to cut government spending or to raise taxation or moreover, borrow the deficit, politicians should do what true money makers and entrepreneurs do week in week out, work out how the system can produce more revenue without borrowing or raising taxes (higher costs) or cutting spending (de-investing) which all three are a road to failure!
Any entrepreneur will tell you when the going gets tough, fuel up fire, don’t sit back and watch the business fail by cutting investment or borrowing to keep going or cutting investment! All of which are the signs of a weak business when all three are the norm.
No, you look at the goose that lays the golden egg and make it last more eggs faster!
In our economy that’s making us, the goose in this case, produce more tax revenue! And to do that you can’t raise taxes or cut investment or keep borrowing to lumber us all with more and more debt! NO!!!!
You politicians and economists must wake up and smell the coffee! You have to make the framework for everyone to earn and spend more as you very well say. That’s not the few at the very top. No. It’s everyone from the bottom up. You need to make the rules the laws the framework and model work not in two dimensions but, four!
So don’t look at Thatchers way or old economists who had no idea what a modern digital electronic age of money looked liked. That thinking is old out dated and obviously doesn’t work. Except for a few very rich who hold most of our money. Not wealth, money!
After 25 years of deficit borrowing on the markets, we see the result of that. The rich get richer whilst the poor get, yes, poorer. Just look! And see what that is going!! It’s giving the democratic powers of money supply to the few. Whilst the majority of us, are devoid of that money. That’s not fair but more importantly it’s not democratic!
Now, I’m all for free market success. Earn as much as you want or can. That’s what growth is. That’s what drives economies and that’s what makes us get up in the mornings.
But, unless that money returns to the pit to supply money to the rest of us how do you think my Lord, can we the majority of people, keep SPENDING to give the golden eggs of increased tax revenue?
You either can’t see it or don’t want to see it. Either way, it’s not good for us the majority. Unless you make sure that once huge sums of money go north upward in the food chain, a mechanism has to be in place to RETURN that money to the pot for us to fuel up the economy by making money flow in a three snd four dimensional way.
MS=R.
Money multiplied by Spending equals Revenue. And you know what revenue does? Yes, gives tax revenue, tax take to the government exchequer.
So if it needs more, you must increase first, the money supply to the pot. Make it available.
I suggest not by taxing those who have it all. That’s just highway robbery. No, let them enjoy SPENDING their money on goods or assets! Make the money flow back from it actually being SPENT on goods we all make! They then get the equivalent in return for their money earned. Be rich from the wealth of goods and assets they can buy with their money. That’s the economy! Not what we have now.
Whatever have now is a trickle. We need a tsunami flow of money back from their SPENDING. It’s not anything to do with money makers. It’s first to do with supplying the pot with freely SPENT money. Not debt ridden investments or debt borrowed money. But freely spent in exchange, money.
We can now, digitally put a spend by date on all or part of money. Make tax lie and make spending money the driving force. That’s how you get the best if all worlds. Do that, and everything else is cured. From potholes to higher wages. Great state pensions to happiness. Autonomous and perpetual spending. Of a vastly increased money supply. Make money move! That’s what a chancellors job is.