Conservative Economic Policy

To the detriment of the Conservative Party, Theresa’s May’s economic plan lacks narrative. To the detriment of the country, it lacks substance.

How can genuinely beneficial economic reform occur? In a broad sense, the answer comes down to two things: substance and style. In democratic systems at least, the only way for positive change to go through is if prospective leaders combine substantive policies with a vote-winning style. At the moment Theresa May’s Conservatives have neither: on both domestic and foreign economic matters, they present an utterly confused narrative whilst refusing to address, and in some cases exacerbating, the country’s most serious economic issues. The result is immense weakness in both the UK economy and the Conservative Party.

To further illustrate the issue, we must look to history. A famous example of substance and style coinciding is Franklin D. Roosevelt’s election in 1933; he inspired American voters with the promise of a ‘New Deal’ and once elected, implemented some radical yet sensible changes involving government works programmes, Social Security and heightened financial regulation. The issue is, such instances are rare. Often, parties win power on the back of attractive narratives devoid of intellectual or economic substance. Yet, crucially for the parties in question, they are still able to succeed so long as that narrative is appealing. The most dramatic recent example of this is the 2016 American Presidential Election. Trump offered an extremely seductive narrative for those harmed by globalisation and left behind by progress – he proclaimed he would “drain the swamp” and “Make America Great Again” through increased border controls and protectionism. The policies he espoused however, were dangerously misguided. A study in May 2016 by the National Foundation for American Policy found that the 45% tariff on China and Japan and 35% tariff on Mexico he supported would cost the typical US household $11,100 over 5 years – hitting the poorest households the worst in a proportional sense.

Turning back to the United Kingdom, David Cameron’s Conservatives provided a very effective narrative of the Financial Crisis and the resulting path to recovery. They insisted that Labour’s overspending had a direct hand in the 2008 crash, and the only way to stop us turning into “the nightmare they’ve seen in Greece” was to balance the budget. Considering that the budget deficit in 2009 was a gaping 10% of GDP, we can see why voters found this story appealing. Nevertheless, it was grounded in shaky economic rationale. As the FT’s Martin Wolf highlighted in 2013, the markets saw the UK government as a credible and solvent borrower. Moreover, whilst Cameron insisted that “borrowing more” could not solve the issue, Larry Summers and Bradford De Long highlighted that in a depressed economy this could very well raise output sufficiently to actually lower the deficit. Despite this, Cameron’s powerful story and effective political tactics won his party two consecutive terms.

Theresa May is unlikely to match even Cameron’s short-lived electoral success, precisely for the reason that she lacks an equally consistent and appealing story. Instead, she swings between Cameron-esque praise of private enterprise and endorsement of a more statist approach. This partly reflects divisions in her own party between avid Thatcherites and One-Nation Tories of a more social democratic hue. It also comes down to the Brexit negotiations, which are diverting a gargantuan amount of political energy away from domestic policy. All the while, the UK’s structural economic ills go unaddressed: productivity is actual in minor decline, housing continues to be unaffordable in major cities and income disparities remain near all-time highs. At this current time, the Conservative Party has no convincing answers to any of these issues – indeed, it threatens to seriously exacerbate some of them with a hard break from the EU.

UK Productivity Growth - GDP per hour worked, Q1 1979-Q1 2014

If Theresa May fails to generate her own story backed by sound economic policies, as a country we face two unappealing prospects. The first is that the Conservatives continue to muddle through with limited domestic policy action and we face continued economic disappointment. The second is that she, uncreatively, apes some of Corbyn’s policies to try and piggy-back off of his very newly effective style. Given the radical nature of Corbyn’s plan, and the murkiness of some of his proposals, the latter is not an attractive prospect. What the country needs is a genuine political debate between the major political powers over the merits and demerits of Corbyn’s statist approach. Alas, this is the best way for us to arrive at genuinely workable political and economic change.