Economic policy

An electoral argument based on passive economic policy is a path to defeat in 2024

Adam Hawksbee

4 minute read

The Conservative leadership race was remarkable not for what the candidates said, but for what they did not say.

Britain has been stuck in a low growth trap for 10 years, facing a recession, approaching an inflationary storm, and no one has a clear economic vision to fix it.

What emerged from the debates and the jostling is familiar. Tax cuts, free markets and reduced regulation – the candidates say – will put pounds back in people’s pockets, spur growth and tackle the cost of living crisis. The different wings of the party differ in how much or how little of this platform they adopt.

This reveals a major gap in the economic vision of the Conservative Party. The most successful economic centers globally – think Silicon Valley or Tel Aviv – are competitive on taxation and regulation, but also make big investments in infrastructure, R&D; and skills. And countries with more spatially balanced economies, like Germany, are investing heavily in troubled areas to ensure that all of their citizens have opportunities.

Today’s economic challenges won’t be solved by simply rolling back the state

This approach is based on the recognition of the origin of growth in today’s knowledge economy. Across industries, successful companies quickly and iteratively apply new ideas to goods and services. This often does not require large fixed costs or tangible capital – the modern industrialist deploys the line of code, not the assembly line. It is based on the sharing of tacit knowledge among highly skilled workers, who crowd into globally competitive cities. And the companies that win can win big, often gaining enormous market power in a short time by leveraging digital platforms.

All of these features point to a reimagined role for the state in addressing market failures – supporting urban densification through new housing and public transport systems, bringing universities and businesses together to translate discoveries into products, leveraging markets to support the industrial strategy and to tackle the dominant problems. technology companies to ensure markets are open and competitive. This is a role that only the state can play. No individual company has the motivation or the capacity to make these kinds of investments and interventions. And around the world, it is mayors and city leaders who have been most successful in deploying this form of economic strategy.

This is the real debate the Conservative Party should be having, obscured by rhetoric about high taxes or low taxes. On the one hand, a passive economic policy which says that the state must step aside. On the other hand, a proactive economic policy which considers that the State has a key role both in stimulating and better distributing economic growth in the 21st century. And this debate cannot wait – on the UK’s current economic growth trajectory, we will be overtaken by Poland in 12 years.

The passive model has vocal defenders among columnists and commentators, chief among them figures like Lord Frost. Proponents of more intentional economic policy are either absent or silent, fearing being branded as “unconservative”.

The folly of this position is that conservatives have had the start of a more intentional approach to economics. The race up was sparked by political opportunity, but it has strong economic roots. The Leveling Up white paper, authored in part by former Bank of England chief economist Andy Haldane, set out the modern limits of economic policy that places too much faith in the ability of markets to generate or distribute naturally growth. Some ministers in the last government, like George Freeman for science and Alex Burghart for technical education, were taking steps to target government interventions in places that had lagged behind.

It’s not just an economic problem – it also leaves the government politically vulnerable. The new conservative electoral coalition is slightly left on the economy and slightly right on culture. They have a greater tolerance for higher taxes if it means investing in public services. They want to ban zero-hour contracts and improve worker protection. An electoral argument based on passive economic policy is a path to defeat in 2024.

Proponents of a more intentional approach to economic policy need to find their voice. The fundamental conservative principle is pragmatism – to treat the country as you find it, not as you would like it to be. And today’s economic challenges will not be solved by a simple rollback of the state.

Adam Hawksbee is deputy director of Onward and former chief policy officer of Andy Street, Conservative Mayor of the West Midlands.

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