This, said Margaret Thatcher as she drew Friedrich Hayek’s The Constitution of Liberty from her bag and slammed it on the table, is what we believe. The “vegetables”, as Spitting Image so memorably characterised her cabinet, agreed.
Thatcher knew what she believed and the business community knew it too. It was the clarity of her commitment to freedom in the markets that allowed new industries to emerge, not least a City of London freed from the regulation that had historically constrained it. It also allowed other, older, heavier industries to collapse. Like her or loathe her, Thatcher built modern Britain.
At the CBI, the Prime Minister attempted some Hayekian thinking of his own this week, when he declared to Britain’s business royalty: “Government cannot fix everything and government sometimes should get out of your hair.”
The sentiment would once have been red meat to the assembled. Instead, on Monday, it went down as badly as Johnson’s jokes.
It is, after all, entirely at odds with the actions of the government today. “Taxes are rising to their highest level as a percentage of GDP since the 1950s.” Not my words, but those of the Chancellor, Rishi Sunak, in his recent budget speech. Public spending today is over half of GDP. Under Thatcher, it was close to a third.
The government’s profligacy is not entirely ideological, of course. The pandemic demanded war-time levels of public spending. But it is not entirely absent of ideology either. The Prime Minister’s stated ambition to “level up” the country, as yet still undefined, demands a more active state than any of his Conservative predecessors has promised in living memory.
The idea that this government is stepping out of the way of the free market is therefore laughable. For businesses right now, it is also not desirable.
The pandemic drew the private sector and the state closer together than they have been in many years. First, the state saved the private sector, primarily thanks to furlough. Then, the private sector saved the state, with the development and production of vaccines.
It is always right to heed Milton Friedman’s dictum that we should always “keep our eyes” on “government spending.” But it is wrong to think that government does not have a critical role to play in the years to come, in partnership with the private sector.
After all, the challenges that businesses now face cannot be faced alone.
Britain is woefully over-centralised and, outside of London, poorly connected. Businesses cannot lay the railway tracks that will create the excess capacity they need to trade along.
Businesses also cannot respond to climate change without government action more ambitious than what was agreed at Cop26, a conference seemingly hampered by Boris Johnson’s unwillingness to conduct the “shuttle diplomacy” that makes a success or failure of them.
And businesses cannot protect themselves from the predations of states, like China, that make a mockery of global trade by subsiding their own industries to bankrupt those of others.
Commonplace in mainland Europe, Britain needs an industrial strategy: not one that seeks to pick winners and protect them, but rather one that illustrates the government’s ambitions and where its own investment will lie. It is precisely the kind of industrial strategy promised by the May government, and then quietly shelved under this one.
The answer is not an ever-swelling state. Like any large bureaucracy, when states swell they sprawl – hoarding power while growing less effective and more corrupt. The danger of a state that swells without clear direction, as Britain’s has, is that this sprawl becomes inevitable.
The state must not be allowed to swell continuously, but it shouldn’t shrink to Thatcherite levels either. Given the challenges that both business and society face today, the state needs to be better. It should use market incentives, like carbon taxes, to encourage businesses to pursue better outcomes. It should limit its investments to areas where only governments can succeed, like national infrastructure and long-term scientific research. And it should clearly signal its intentions to the business community, whose pursuit of enlightened self-interest will then serve both society and shareholders.
In short, this is not a time for Thatcher’s ideology. But it is a time for her clarity of thought and deed.