A New Manifesto for Conservative Capitalism that Can
· Consistently grow personal prosperity and quality of life for the majority.
· Avoid repeating the economic catastrophes of the past 20 years.
· Win the Conservative Party a 100-seat Majority.
· Instantly re-engage Blue Wall and Red Wall voters, and win back the grassroots.
· Instantly regain control of economic credibility and the cost-of-living crisis.
· Reinvigorate conservatism with a new purpose and a new general election mandate.
· Spur a technological revolution while motivating and rewarding innovative entrepreneurs.
· Make capitalism popular.
· Align Conservative Capitalism with the Conservation movement.
· Permanently lock out unsustainable socialism; transforming conservative capitalism from cyclical phenomenon to political hegemony.
Good Growth & Bad Growth
In 1994, Nobel Economics Laureate, Paul Krugman published a now infamous paper titled, The Myth of Asia’s Miracle. Krugman argued that the fast-growing ‘Asian Tiger’ economies were pursuing the wrong kind of growth, that it was unsustainable, and that growth rates would soon collapse, just as they had in the USSR.
The paper was controversial at the time. But by 1997, Krugman’s prediction proved spot on. The Asian Financial Crisis hit, and as the Tiger Economies blew up they nearly brought the entire global economy down with them. It would take years for them to recover. None regained those growth rates again. Krugman was right: The tigers were nothing more than paper tigers.
Why was he right? Essentially, Krugman argued there are two types of growth. There is GOOD GROWTH – this is sustainable growth that delivers permanent improvements in personal wealth. Then there is BAD GROWTH, which does not make people wealthier and eventually blows up.
As Krugman observed, Socialist economies always pursue the latter – i.e. bad growth. Thus, the pattern they follow is the same: there is a honeymoon period and it looks like Socialist policies really are working this time. Then things collapse and poverty rises.
What is Bad Growth?
Bad growth involves simply mobilising more of the three traditional factors of production: Land, Labour and Capital.
For example, a socialist country can mobilise more LAND by invading its neighbours (USSR), stealing land (Zimbabwe), or deforesting, polluting and destroying its interior in an unsustainable way (e.g. China, Venezuela). All this will temporarily boost production, but not productivity.
Similarly, a socialist country can ‘grow’ by increasing LABOUR. For example it can force women, vagrants, and children into work, force people to work longer hours, bring millions from the countryside to factories and collective farms, or employ prison or slave labour. The USSR and Maoist China pursued all these approaches. In some cases they temporarily boosted production but not productivity.
Finally, a country can boost itself by mobilising more CAPITAL. Again, you can spend your reserves, run up vast debts, expropriate assets, print money, debase your currency, and suppress interest rates. Once again, none of this will boost personal wealth or productivity.
Look at history, and as Krugman observed, ALL socialist governments have followed this approach. i.e. they mobilise more land, labour and capital in a way that is unsustainable. This creates the temporary illusion of growth even as prosperity declines. Eventually, things just collapse.
A more recent example is Greece. After joining the Euro, Greece enjoyed a decade of seemingly miraculous growth under the Socialist (PASOK) party. The country had net migration of nearly 200,000 people per annum. The government ran up huge debts to pay for enormous welfare expansions and pet projects. Private sector developers took on billions in credit to cover the country in new malls and apartment blocks. In short, Greece grew by consuming vast amounts of land, labour and capital. Meanwhile productivity tumbled. When the financial crisis hit, the economy imploded. The result was human suffering on an enormous scale, with many elderly and vulnerable people left without pensions, benefits or healthcare. Even childhood vaccination programmes were dropped. By the time Greece found a bottom, per capita wealth had declined to levels not seen since the 1980’s. What Greece shows is that bad growth isn’t just harmless. It can leave you worse off than before.
Good Growth
By contrast, good growth relies entirely on the fourth factor of production: Entrepreneurship. Entrepreneurship encompasses things like R&D, resourcefulness, ingenuity, creativity, innovation, incentives, superior management, cutting waste, artificial intelligence, labour specialisation and automation.
To give an example, imagine I own a quarry. I can raise production by invading the mountain next door (land), hiring more workers (labour) to smash rocks and buying them hammers (capital). But productivity (per capita wealth) will not improve. That is bad growth.
Alternatively (as Sweden did) I could invent some high tech mining equipment that increases production with what I’ve already got. The latter is good growth.
It is this fourth factor that has driven the collapse in infant mortality over the past century; and the fact that mass market cars today are cheaper, faster, safer, more reliable and less polluting than thirty years ago. This is the miracle (the win-win) bit of capitalism.
Thus, to grow sustainably and to grow richer, you need more of the fourth factor - entrepreneurship. That means things like tax breaks, enterprise zones, R&D incentives, meritocracy, competition, deregulation, access to capital and free markets. This is the bit of Thatcherism and Reaganomics that was popular and worked; delivering increased prosperity for millions, and encouraging the entire Communist Bloc to declare, ‘I want that too!’
The Trouble with Conservative Economics
The problem with today’s Conservative growth plans is that they fail to discriminate between good growth and bad growth.
Some policies - such as tax cuts, deregulation and enterprise zones - are likely to promote ‘Good Growth.’ That is, sustainable growth in productivity.
But the core flagship policies are Bad Growth. They just mobilise more land, labour and capital. This includes running large deficits with a reluctance to cut public spending (i.e. mobilise more capital), proposals to trash more of the greenbelt (more land), and opening the door to ever more migrants (more labour).
This is almost certainly why Jacob Rees-Mogg warned Truss against her bad growth economic policies. Rees-Mogg was an Emerging Markets fund manager during the 1990s. He had a front row seat for the Icarus-like rise and fall of the Asian Tigers. Rees-Mogg is perhaps the only Minister who understands the folly of bad growth.
Crucially, these latter policies are electoral suicide. Crashing the economy through excess borrowing is just pouring fuel onto the cost of living crisis (the number one issue across all voter cohorts). Trashing the Greenbelt will cost Blue Wall seats and lead to more grassroots rebellions (as happened in Chesham & Amersham). Meanwhile, immigration remains the hot-button issue, especially for low-income conservatives and Red wall voters, who are now deserting the party in droves, having felt betrayed. From an electoral standpoint, you could not pick a worse combination of policies.
Further, focusing on mobilising more land, labour and capital, risks repeating and exacerbating the failures of the past two decades. Since 2000, we have increased government debt six fold (more capital), flooded the country with 15m migrants (more labour) with the lure of unrestricted access to an all you can eat buffet of (debt-funded) public services, and carpeted the south in Barratt Homes - paid for by homeowners brave enough to indenture themselves with forty year mortgages. Yet the result is that everyone is left scratching their heads as to how their quality of life has collapsed while the economy has been ‘growing’. This is ultimately destroying any semblance of faith in capitalism.
To put it another way, it is simply a fiction to say that governments over the past 25 years have not pursued growth. Every single one of them explicitly has pursued growth. They have just been pursuing the wrong kind of growth, while neglecting the right kind of growth (hence the productivity puzzle).
Rescuing Capitalism
· The Conservatives need to rebrand their growth philosophy by differentiating between bad growth and good growth, and to focus solely on the policies that deliver Good Growth.
· Good growth involves sustainable improvements in productivity. It is driven by promoting the fourth factor of production: Entrepreneurship.
· Good growth is measured by what is technically called Total Factor Productivity. Sunak and Hunt must explain and measure themselves in terms of Total Factor Productivity, not just ‘growth.’
· Promoting good growth will grow productivity, improve personal prosperity and quality of life, and restore faith in capitalism.
· By contrast, the government needs to bin the bad growth parts of their agenda. Bad growth is just mobilising more land, labour and capital.
· Bad Growth is unsustainable and electorally suicidal. It damages quality of life and is already sending once loyal voters running.
The Path to a 100-seat majority and Conservative-Capitalist Hegemony
Having binned the bad growth agenda, the next step is to hold a set of three populist referenda to permanently choke off bad growth (and Socialism), and win back the grass-roots and the majority.
The Three Referenda would involve
1 – The Honest Money Act. An honest money act would seek to protect the value of money (perhaps through an average inflation target of zero), while setting a lower bound on interest rates to ensure a positive cost of credit. Doing so would prevent a repeat of the last two decades, where ultra-easy money has created endless social problems, inequality and enormous waste. Tighter money would also be super-popular. It would instantly give the government a credible plan to fix the cost of living crisis permanently and regain market confidence. That puts them on top of the number one voter issue. Further, voters all over the world have always hated inflation, and the vast majority of voters (especially Conservative voters) are clamouring for higher interest rates and lower inflation.
2 – Local Planning Referendums. Essentially you give every council ward in the UK a choice. They can become an enterprise zone – with a planning free-for-all. Or they can become a well-preserved national park, where construction is restricted to existing footprints, new buildings have to be built beautiful and green space is expanded. Thus voters get to choose whether they want dynamic industry or bucolic quality of life. Planning has become a hot-button issue for Blue Wall and Grassroots conservatives. This opportunity instantly engages them, shows that the government is listening and wins them back. It prevents any more shock voter rebellions and bi-election losses.
3 – Fix Immigration Now: Immigration has become the hot-button issue for low-income and red wall conservative voters. Most ominously, these voters feel betrayed on immigration. That sense of betrayal is seeing them leave the party, and could cause them to leave permanently. The great thing about controlled immigration is that it is a Tory USP – no other party (SNP, Labour, Lib-Dems or Greens), will follow on the issue. All you have to do to recapture and re-engage those voters is to call a referendum that guarantees a cap on net immigration at either zero or sub-100,000, while derogating all immigration matters from international law and returning them to Parliament.
The Electoral advantages of these Referenda are pretty clear:
- You are granting the public referenda on the three hot-button issues for conservative and potential conservative voters. The Tories could once again re-engage a broad voter base and demonstrate they are listening on the issues that matter. That would win Truss the political capital she needs to pursue her economic growth agenda.
- The Conservatives get to replay Brexit Greatest Hits, three times over. Brexit gave the Tories their biggest electoral landslide in a generation, and ended a brutal thirty-year civil war that had rent the party in two. It also won them a whole new demographic of voters, while plunging the opposition into existential crisis by exposing their rifts and contradictions. Repeating the trick would be a masterstroke.
- These three referenda would instantly win Rishi Sunak the loyalty of the grass-roots, just as Brexit won Johnson the grass-roots. This matters more than anything. Over the past forty years, any leader who held the grass roots enjoyed a compliant party and an unassailable position (Thatcher in the 80’s, Cameron, Johnson 2019-2020). By contrast, those who lost the grass-roots faced civil wars and bitter personal attacks (Major, May, Johnson 2021-2022). With the grassroots, the Conservative party is an efficient machine. Without the grass roots the party is ungovernable and self-destructive.
- Sunak gets a mandate for a second term (and General election win). The mandate is to execute on the three referenda, and to implement policies that will drive productivity growth. The latter becomes imperative as policies that just mobilise more land/labour/capital are no longer possible.
- Crucially this sets the party up on a different philosophical path from the past 15 years. That makes them electable: because you’re not just electing the same old tired ideas. You are, in effect, electing a fresh, new government.
But the Economic advantage is even more profound and permanent: Capitalism that focuses exclusively on the fourth factor of production will grow wealth and improve quality of life. But more importantly, by constricting the mobilisation of more land, labour and capital, socialism becomes impossible. Socialists rely on the mobilisation of land, labour and capital to hide the fact that their policies destroy productivity and quality of life. If the left cannot mobilise more land, labour and capital, there is no honeymoon period to entrench themselves – their policies are instantly rumbled as wealth destructive.
Thus, if capitalist conservatives can constrict the mobilisation of land, labour and capital, conservative capitalism is no longer at the mercy of the electoral cycle. Instead, it becomes hegemony. It is the only viable option. That places centre-right leaders and think-tanks in permanent government. And it places productive entrepreneurs permanently at the top of the social hierarchy.
For example, if lazy developers cannot just build on green land, we would have to start using creative and resourceful alternatives. Such as change-of-use for the UK’s half-million boarded up shops, efficient use of government real estate, or Singapore-style coastal land reclamation and island developments. These projects involve creativity, resourcefulness, innovation and new technical skills. It’s power to the entrepreneur.
Similarly, if you cannot import an infinite number of migrants, you have to repurpose migration to focus on a small number of ‘super-migrants.’ These are young, hungry, highly productive workers who do not use public services or bring dependents, while staying on short term visas and then returning home (before they bring dependents or get old and unproductive). This is exactly what Brexit was supposed to enable. Further, you have to squeeze more productivity from your existing employee base. That means encouraging mothers, ex-convicts, the long-term sick and older people back into meaningful jobs, alongside employing more automation and AI.
These are examples of forcing ourselves to innovate by using better the resources we already have. This is pure per capita wealth creation.
Building the Bridge AND Burning the Boats: A New Philosophy for Conservative Capitalism
To summarise the above:
The traditional role of conservative capitalism has been to encourage entrepreneurship alongside the mobilisation of more land, labour and capital.
But if you really want pure conservative capitalist hegemony, you need to encourage entrepreneurship while permanently constricting the mobilisation of land, labour and capital.
The two roles – unleashing entrepreneurism AND constricting mobilisation - are equally important and complementary.
By permanently constricting land, labour and capital mobilisation, you elevate productive entrepreneurship to the only game in town. Without the former, Socialism cannot get a look-in, let alone become entrenched.
Crucially, the constriction of land, labour and capital needs to be done via democratic or constitutional means; thus making it permanent. A good example of this is the protection of property rights via the US Constitution or ECHR. In so doing the ability of statists to mobilise more capital is constrained.
What is really elegant about this Entrepreneurial Capitalism, is that it is the inverse of Marxism. Thus it carries all the simplicity and potency of the Marxist movement, while being its polar opposite.
In simple terms, Marx’s Das Kapital argues that private owners of land and capital will cruelly exploit workers in the pursuit of profit. Hence a tyrannical state is required to mobilise and monopolise all land, labour and capital to protect the workers. The big flaw in Marxism is that it leaves no place for entrepreneurship. In practice, owners who abuse their staff and do not innovate, will quickly lose their economic position to competitors who manage things better. Meanwhile, workers at the bottom can, through entrepreneurship, climb to the top and eat their bosses’ lunch.
Thus, Marxism can be illustrated like this:
By contrast, traditional capitalism has sought to create a space for entrepreneurship alongside the mobilisation of land, labour and capital. The amount of support for entrepreneurship varies with the political cycle.
But a more radical, anti-Marxist philosophy goes further. By precluding the possibility of mobilising more land, labour and capital, it elevates Entrepreneurism to the only game in town. Promoting entrepreneurship becomes a permanent and vital imperative. Meanwhile socialism can never gain a foothold, because it cannot obfuscate its wealth destruction with the unsustainable mobilisation of land, labour or capital. Conservative capitalism becomes hegemonic. This is the pure inverse of Marxism:
Furthermore, Entrepreneurial Capitalism is supported by evolutionary biology. In experiments that have been repeated hundreds of times, when hungry and stressed primates are given bowls of unshelled nuts, they do not open them. When healthy chimps are given small bowls of shelled and unshelled nuts, they just eat the shelled nuts. But when they are given a cornucopia of unshelled nuts, they quickly learn to employ tools. In other words, progress requires both opportunity and restriction. It is not enough to support and incentivise productive entrepreneurs; you must also take away the alternative of just consuming more resources.
To understand this in a human context, consider the aftermath of the Bubonic Plague. The ‘Black Death’ wiped out roughly half of Europe’s peasant population. This created an enormous shortage of peasant labour. As wages and bargaining power rocketed, there was a wave of mechanisation that led to the scientific revolution. Furthermore, with higher wages and labour productivity, inequality narrowed and social mobility rocketed. As peasants enjoyed their newfound disposable incomes, there was a surge in consumerism, the emergence of new leisure activities, a flourishing of culture, and a wave of new social, political and religious movements. It was the plague and labour shortages that set Europe on its path to global dominance. In short, labour constrictions were good for everyone - especially the poor and the innovative. Everyone that is, except for feudalist lords.
This was not a one-off: the same phenomenon occurred in Russia and the Middle East after similar plagues. More recently we have seen it with post-war booms; such as those after the American Civil War and the World Wars. A tough war will destroy much of a nation’s productive real estate, wipe out its most productive labourers (young healthy men), burn through its reserves and leave its creditors exhausted. Any country in this state has no option but to embrace entrepreneurism - to be more resourceful. When the quantities of land, labour and capital are eventually restored, the country has learnt to do more with less, and thus finds itself far wealthier than before. Further, social revolutions such as the suffragette movement, female and minority workers rights, and the NHS are all a direct consequence of post-war labour shortages. If there is a shortage of labour, government and business has no option but to encourage new workers and to look after them better.
The same thing has been observed in development economics, by Albert O. Hirschman. Hirschman noticed that the international development projects with the most long-lasting benefits were the ones where things did not go to plan. Disasters created resource constraints, forcing the participants to innovate and form new networks of co-operation. Those new innovations and networks tended to spread far beyond the original project. Hirschman dubbed it, ‘The hiding hand’
Creativity always comes as a surprise to us; therefore we can never count on it and we dare not believe in it until it has happened. In other words, we would not consciously engage upon tasks whose success clearly requires that creativity be forthcoming. Hence, the only way in which we can bring our creative resources fully into play is by misjudging the nature of the task, by presenting it to ourselves as more routine, simple, undemanding of genuine creativity than it will turn out to be.
Incidentally, this model also aligns Capitalist Conservatism to the environmental and historical conservation movements. The protection of historical and natural habitats are constraints on the mobilisation of land; thereby forcing the hand of alternative, entrepreneurial solutions. The same goes for ageing demographics and declining populations. Unlike traditional capitalism, entrepreneurial capitalism does not require endless population growth. Demographic decline necessitates and empowers entrepreneurial productivity.
And there’s a final piece to this magical puzzle. This new model of capitalism does not just make capitalism socially acceptable but heroic. Throughout history, the prerequisite of heroism has been resource constraint. Think of Beowulf or Ulysses, venturing into the unknown with almost nothing. Religious heroes like Jesus Christ, Gautama Buddha and the Prophet Mohammed enjoyed no wealth or political power and just a few volunteers. Modern heroes too share this same commonality: think of MacGyver, Rambo, the A-Team or James Bond. Heroes have to be resourceful. Heroes turn a little into a lot.
In business we venerate leaders like Steve Jobs and Richard Branson, because they turned a little into a lot. No-one admires the CEOs of HSBC or Persimmon, or the Bank of England Governor. These people are not wealth creators: they just shuffle and consume a lot of resources, while lobbying for ever more. In constraining the factors of production, we reward the businessmen who can be resourceful – those who turn a little into a lot. These are worthy heroes and role-models, as opposed to fat-cat administrators. Thus, capitalism and its leaders can become publicly celebrated rather than resented. And it this philosophy with which Thatcher vanquished the managed declinism of Heath. Per Roger Scruton:
Margaret Thatcher believed that, in business and in politics, the buck stops here. The important person in a free economy is not the manager but the entrepreneur – the one who takes risks and meets the cost of them. Entrepreneurs create things; managers entomb them: so she taught us, and it was immediately apparent she was right, since the effects of management culture lay all around us.
In 1519, the Conquistador Hernán Cortés arrived in the New World with six hundred men. On landing, Cortes ordered his men to torch their own ships. This sent an unequivocal message: There is no turning back.
Liz Truss was obsessed with a book called The Invisible Bridge. The book takes its title from a piece of advice bestowed on Nixon by Nikita Khrushchev: “If the people believe there’s an imaginary river out there, you don’t tell them there’s no river there. You build an imaginary bridge over the imaginary river.”
But building a bridge to prosperity is not enough. To make people cross that bridge, and keep crossing it, you must also burn the boats.
Andrew Hunt
October 2022