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The death of free market ideology

Summary:
Free market economics is dead as a political idea. The government’s subsidy to CF Industries to ensure that it supplies a product that is (checks notes) soaring in price is just one of several examples of this. It has also introduced trade barriers within the UK, an almost unprecedent move for any developed nation in modern times. Even before the rise in National Insurance, it was planning on raising the share of taxes in GDP to what the OBR says would be “its highest level since Roy Jenkins was Chancellor in the late 1960s.” And you can interpret all the talk of “levelling up” (and it is all talk) as a renunciation of the free market idea that companies will relocate to areas where land and labour are relatively cheap. All of this fits with Johnson’s “fuck business” remark; his

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Free market economics is dead as a political idea.

The government’s subsidy to CF Industries to ensure that it supplies a product that is (checks notes) soaring in price is just one of several examples of this. It has also introduced trade barriers within the UK, an almost unprecedent move for any developed nation in modern times. Even before the rise in National Insurance, it was planning on raising the share of taxes in GDP to what the OBR says would be “its highest level since Roy Jenkins was Chancellor in the late 1960s.” And you can interpret all the talk of “levelling up” (and it is all talk) as a renunciation of the free market idea that companies will relocate to areas where land and labour are relatively cheap.

All of this fits with Johnson’s “fuck business” remark; his renunciation of the European single market; and wilful increase in political uncertainty. What we have here is a flat rejection of Thatcherism. 

Of course, markets are still a massive part of capitalism (and I suspect they should be a big part of post-capitalism too). But they have few defenders in government,

Which poses the question: why have we seen so great an intellectual counter-revolution?

It’s a tricky question because of an astonishing fact which demonstrates the emergent genius of the Tory party – that it has made this move without a protracted debate. Whereas the Labour party tears itself apart over much smaller differences, the Tories just get on with it without feeling any need for ideological consistency or introspection. As Sir Keir Starmer says, they have “a remarkable ability to shed their skin.”

Although the Tories aren’t telling us why they’ve made so great a change, I’d suggest several possibilities.

One is the simple empirical fact, that free markets haven’t worked as billed. I don’t just mean that the pseudo-market in retail gas and electricity has failed. I’m thinking also of the financial crisis and the long stagnation in productivity. All show in different ways that markets don’t deliver stability and growth as much as hoped. Of course, free marketers have defences against these points – but the point is that they need defences, and are now on the back foot.

We can turn this around. In what sector is there a clear case for introducing more market forces? It’s not obvious. (No, healthcare isn’t one).

There’s a second reason, which we can derive from Jesse Norman’s admirable book, Adam Smith: what he thought and why it matters. Markets, he says, are not isolated technologies. Instead, they “are sustained not merely by incentives of gain and loss, but by laws, institutions, norms and identities.”

If we have the right such norms and institutions, the self-interest of market actors will indeed promote the public interest. If not, though, we get rent-seeking, corruption and cronyism, as Jesse says:

Capitalism can encourage people to behave in socially productive or unproductive ways: to devote their energies to building homes or finding new tax loopholes; to developing life-saving drugs or running offshore sweatshops. It can stimulate fruitful investment, or the search for unwitting clients to be ripped off.

Latter-day free markets have, however, given us too much of the unproductive activities: fraud; mis-selling; cronyism and rentierism (pdf). Thatcher hoped a market society would give us men like her father; in fact it gave us ones like her son. Actually-existing free markets have not been embedded in the norms and institutions that would make them work in the public good. Which has, maybe unfairly, discredited the case for them. Jones

Relatedly, one lesson of recent years is that capitalism requires a more extensive state than Thatcherites thought - not just to provide infrastructure and regulation but to provide automatic stabilizers and support for those “left behind” by globalization – a group which was never in the free marketeers’ original script.

Perhaps, though, there is something else. Tory support for market forces was strong when they were operating to enrich capitalists and hold down wages, but it has waned now that they are starting to raise wages, if only in a few sectors. Business owners whining about staff shortages are showing a fine sense of entitlement but not so keen a grasp of market economics. The attitude of many on the right to the free market reminds me of Corporal Jones: “they don’t like it up ‘em”.

Perhaps free market ideology was, for many, never a principle but only just one more weapon in the class war, a means of protecting what Tories really care about, which is the defence of private sector hierarchies.

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