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May should set her sights on the crony capitalists The most important battle in the Conservative party isn't over Brexit, it's over capitalism

Credit: Christopher Furlong/Getty Images

October 8, 2018   8 mins

There’s a battle of ideas bubbling at the heart of British politics. It concerns conflicting policy beliefs that define the very essence of the Conservative party ­– but, within this struggle, Labour is playing a decisive role too.

Across Europe and the rest of the world, others are watching, wondering which path the UK will take, knowing that the outcome could be of genuinely historic importance. Yet this battle of ideas has nothing to do with the UK leaving the European Union. It’s far more important than that.

The British political and media classes remain obsessed, of course, with every twist and turn of the Brexit process. That’s understandable. Still fractious negotiations over UK-EU “regulatory alignment” and other seemingly arcane concepts may see Theresa May ousted as Prime Minister. Various Parliamentary shenanigans could yet upend the Brexit vote altogether.

Having just endured the party conference season, though, it’s clear to me that, beyond the headlines, an even more profound debate is gaining momentum, with much greater potential impact on the long-term living standards of millions of workers across the UK and beyond. It’s of relevance to the vast majority of countries on earth, in fact, for it’s a debate about the future of capitalism itself.

“People feel that the old way of running things isn’t working,” declared Jeremy Corbyn during his conference speech, addressing the party faithful in Liverpool. As the Labour leader knows, support for capitalism across the UK is on the wane. Ten years on from the financial collapse, amid countless corporate scandals and spiralling wealth inequality, there is a growing sense among many that ‘the system’ is rigged against them.

A recent YouGov poll suggested around 60% of voters think the railways and Royal Mail should be renationalised. Over half want the water and energy companies back in public sector ownership. A ComRes survey earlier this year showed that young British adults now think capitalism is more dangerous than communism.

No matter that the Soviet Union collapsed under the weight of its economic contradictions. Or that, since the late-80s fall of the Berlin Wall, the spread of capitalism has enriched billions – with the share of the global population in extreme poverty plunging from two-fifths in 1990 to under one tenth today.

The reality for many is that, across the West, stagnant wages and spiralling corporate profits are fuelling a sense that capitalism is now skewed, with the benefits accruing to an elite few at the expense of the many. And that’s allowing Corbyn to present, with some success, his programme of aggressive renationalisation, sweeping trade union powers and highly punitive taxation as “the new common sense of our time”.

At the Tory party conference in Birmingham, during numerous conversations with ministers and other senior Parliamentarians, I came across two distinct groups, separated by how they thought their party should respond to Corbyn.

The first group emphasised the need for a combination of negative campaigning and reminders that capitalism is the best system we have. They argued that the Tories should keep repeating that Labour always runs out of other people’s money, while stressing that Corbyn has, in the past, shown bad judgement in fostering links to various terrorist leaders and crackpot regimes.

Above all, though, this first ‘it ain’t broke’ group of Tories maintain that there is no need to apologise for capitalism, because it works. This was a phrase I heard repeatedly, from a wide variety of senior Conservatives in Birmingham.

The second group of Tories, in contrast, understand there is a serious problem and that Corbyn, for all his clear faults, is asking the right questions. Their response is to acknowledge that ‘the system’ does need serious reform – and such reform is vital to prevent a Corbyn-driven onslaught of far more statist, counter-productive, anti-capitalist policies.

From telecoms to energy, from banking to house building, this ‘let’s fix it’ group of Conservatives argue that UK industries have become increasingly concentrated – and that’s resulting in bad outcomes for consumers, including less choice, poorer service, ‘super-normal’ profits, under-investment and high prices. That capitalism does face a legitimate crisis of confidence.

This is by no means the official Conservative party view. I heard very little along these lines from the platform in the main hall in Birmingham. Yet, at numerous fringe meetings, listening to some of the party’s most interesting thinkers, it was a recurring theme that’s showing signs of punching through.

Perhaps the most prescient fringe speech I heard in Birmingham was from John Penrose, a Conservative MP since 2005 and, before that, a successful businessman. He recently published an interesting paper that deserves attention – ‘A Shining City Upon a Hill: Rebooting Capitalism’.

Penrose opens his argument by asserting that “every so often, capitalism goes wrong”. It’s an obvious, but extremely important point. Delving back into history, Penrose explains how “waves of bank failures in the early days of the Industrial Revolution resulted in the pivotal Bank Charter Act”. He reminds us that “exploitatively-poor working conditions led to progressively more effective Factories Acts, beginning a long process of improving safety and equity for employees which continues to this day”.

Referring to a later era when capitalism was in crisis, Penrose recalls that “the Great Depression which followed the [1929] Wall Street Crash gave birth to modern competition laws, to protect customers from being exploited by over-mighty companies who abused their power”.

All these changes took place not because capitalism should be scrapped in favour of a far more dirigiste system of socialism or even communism, but because it was imperative that the system was modified in order to regain the broad public consent on which it is built, and ultimately to ensure its survival.

“Each of these moments happened because capitalism had started to behave in ways which seemed immoral,” argues Penrose. “Creating wealth is wonderful, but not at any cost and the tariff in human health or dignity had become too high”.

“So each time, the system had to change,” Penrose continues. “Society demanded new laws to shape and frame free markets so they still drove vigorous economic growth, but humanely and without exploiting the weak and vulnerable … capitalism was updated, modernised and rebooted”.

The status quo benefits a lot of us, but for many more – perhaps even the majority – capitalism isn’t working as it should. “People are casting around for answers about how it should change,” says Penrose. “But in times of trouble we turn to what we already believe, and the discussion about what those alternatives might be has got stuck in a formulaic and repetitive, backwards-looking debate about the failed and stale options of the past”.

I think that’s exactly right. The Tory party is largely run at the moment by the ‘it ain’t broke, don’t apologise’ crowd who say capitalism is fine as it is. They believe Corbyn can be countered by full-bloodied appeals to free enterprise, references to his support for Venezuela and reminders of the 1976 ‘cap in hand’ crisis – when the UK under a Labour government had to be bailed out by the International Monetary Fund.

But many of the voters the Tories need to attract – young couples struggling to make ends meet, graduate professionals with no chance of buying a house – weren’t alive in 1976. To them, assertions from wealthy ministers that ‘capitalism is the key to prosperity’ sound offensive. Talk that ‘Labour always wrecks the economy’ or that Corbyn ‘placated the IRA’ fall on deaf ears.

“To its credit, the political left has realised there’s a problem – yet has retreated into comfortingly-familiar arguments about why capitalism itself is fatally flawed, to which the only solution is socialism, state ownership and renationalisation,” observes Penrose.

“But the political right has followed them, refighting the intellectual battles of the 1970s and 80s by explaining why the left’s answers are wrong, but without offering a modern, attractive and fair alternative vision instead”.

Eschewing ‘it ain’t broke’ for ‘let’s fix it’, Penrose lays out a series of ideas to tackle genuine problems – “housing that is far too expensive … energy firms that rip-off loyal customers … water firms that don’t fix leaky pipes but still impose hosepipe bans … broadband that works slower than it’s supposed to”.

He observes that the UK’s last Competition Act – a sweeping round of anti-trust legislation to promote customer-friendly competition – was in 1998, before Facebook and Google existed. “We are still using analogue competition rules in a digital age,” he says. “A new Competition Act is urgently needed”.

It’s true, as Penrose says, that “Britain’s economy has become more concentrated, with big companies getting bigger – which gives them more power to charge higher prices, or lower quality, or pay their staff less, or all three at once”.  It’s also true that, despite the UK’s stellar gig economy employment figures, that “for some lower-skilled workers (but not all, and not higher-skilled ones) zero-hours contracts feel like exploitation”.

Free markets don’t amount to the ‘law of the jungle’ as some anti-capitalists like to suggest. They are political and cultural constructs – and, every now and then, the rules need to be overhauled to tip the balance of power away from an over-bearing, all-powerful corporate lobby and back towards such consumers. Penrose believes that now is such a time.

So does Jesse Norman, the Hereford MP who recently wrote a biography of Adam Smith. Rightfully seen as an architect of capitalism, Smith is as misinterpreted by his acolytes on the neo-liberal Right as he is by detractors on the Left. Often associated with untrammelled free markets, the reality is more nuanced.

Writing as the Industrial Revolution dawned, Smith understood that, while capitalism could generate wealth for business owners, it would work only for the broader population, and maintain public support, if certain conditions were met. Some 226 years after Smith died, we need to heed his words – for UK capitalism, in its increasingly cronyist guise, is doing the public a disservice.

Speaking on the fringe at Birmingham, in a packed auditorium, Norman said exactly that. “The best thing you can do in the context of crony capitalism is practice honest government,” he said. “You can’t let government be pulled around by vested interests”.

Norman denounced the ‘it ain’t broke’ group of Tories. “The empty rhetoric of free markets is one thing – what we really need is genuine competition, recognising that many rising profitability and mark ups reflect the reality that some businesses have become too powerful”.

When describing the government’s housing policy, Norman – despite being on the ministerial pay-roll, shows admirable intellectual independence. “It isn’t working because of artificially inflated demand,” he said in Birmingham, calling out “Help to Buy” as counter-productive.

And the day after the government said it would tax wealthy overseas buyers using UK property as an investment bolt-hole, Norman countered that ministers should be focussing their efforts on bringing large UK developers to heal, by tackling building delays designed to retain scarcity and keep prices and profitability artificially high. “The government seems to be going after oligarchic investment in housing,” remarked Norman. “I think it should go after oligarchic supply”.

Brexit will clearly dominate British political discourse for months and even years to come. Yet, the reality is that only 8% of UK firms sell goods and services to the EU, our total exports to the bloc currently account for only a tenth of GDP. If Brexit results in slight changes in our EU trade arrangements, that’s unlikely to have a massive long-term economic impact. I’ve long maintained that any negative fall-out will anyway ultimately be outweighed by rising UK trade with the four-fifths of the world economy beyond the EU – including all the fast-growing emerging giants of the East.

UK capitalism, however, is now on trial and preserving it will take action, not a simple dismissal of the concerns of a new generation with an assertion that “socialism doesn’t work”. Ministers must display the grit needed to face down vested interests, rein-in excess and make sure punters don’t feel constantly ripped off.

I’m generally a business-friendly commentator who believes in low taxes and a small state. Yet I’d credit the Left with some of the best, most courageous and clear-sighted policy analysis right now – such as the recent report of think tank IPPR’s Commission on Economic Justice – even if the proposed solutions sometimes make me balk.

Big companies across the Western world have become far too powerful. Our political, business and media elites are much too intertwined. Such cosy relationships have resulted in an enfeebled competition policy, which is further increasing the might of a small number of corporations, to the detriment of consumers, smaller firms and broader society.

The Tories need to understand such views are increasingly finding favour with a broad swathe of the electorate – invoking the kind of bold anti-trust measures that America reached for in the late nineteenth and early twentieth century.

Such measures are essentially pro-market – because they free up competition and make capitalism work properly. That’s a reality Tory high command needs to grasp.

Liam Halligan writes his multiple-award winning weekly “Economics Agenda” for The Sunday Telegraph. A panellist on CNN Talk, he has previously worked for The Economist, Financial Times and Channel 4 News.


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