It has been a fascinating week not only in terms of Brexit impact, but in terms of the transformation of the British political landscape. The conservative party conference 2021 (CPC2021) in Manchester was indeed so rich in rhetoric, that analysing what happened there could easily fill several weeks’ worth of my BIT blog. For me the CPC2021 may be remembered as the moment where the transformation of the Tory party from the party of business and commerce into the party of plutocrats has been completed.
A party drunk on rich donors
Senior Tories’ attack on British business was probably the most remarkable thread through various speeches and statements during the conference. The PM himself decried the ‘old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration.’ Various minsters and cabinet members backed the PM’s attempt to shift the blame for the severe supply chain issues from their own handling of Brexit onto businesses themselves; variously accusing businesses of not having prepared for Brexit, relying on too few suppliers, and even of ‘being drunk on cheap labour.’
The confrontation with British business may be interpreted as a very personal pre-emptive strike to make sure any fuel, labour, and food shortages that may affect British people during the winter will not be blamed on them. Yet, the continuous tensions between Johnson’s ‘new Tories’ and businesses – illustrated by Johnson’s famous ‘F**k business’ remark when he was still Foreign Secretary – may reveal a deeper reality about the Tory party, namely that it has now unquestionably and openly become the party of the ‘takers’ not the ‘makers.’
This fact has become increasingly obvious over the past years. A recent investigation by the Byline Times into the largest Tory donors shows, the party is now well and truly a party of the financial industry, with hedge fund managers, bankers, and people having made their wealth in the insurance dominating the ranking of top donors. The Johnson government is planning to further increase the party’s ability to tap into that pool of money from the super-rich, by reforming the Elections Bill to allow donors registered in tax havens to fund domestic political parties beyond the current limit of 15 years of living abroad.
The bold attack on business clearly shows that top Tories do not feel they very much depend on what business leaders think of them. The Byline Times investigation into who funds the party provides a clue why that is so. From this perspective, what appears at first glance like an extraordinary row between the Tory party and UK businesses, makes perfect sense for a party that is increasingly drunk on its rich donors.
All the right questions….
Another take away from the CPC2021 was that many Tories provided a – for conservatives – refreshingly bold assessment of the ills afflicting the British economic model. Regional inequalities, low wages, low skills, and low productivity all featuring in many speeches. As such, I think Tories are asking all the right questions. The problem is that laying the blame squarely at the feet of businesses reveals a very simplistic understanding of the workings of the British economy.
While underinvestment by employers in training and the workforce more generally is certainly an issue, the problem is that no individual employer is likely to be able to solve that issue on their own. This is due to a simple collective action problem, whereby the ‘poaching’ of well-trained workers by competitors who do not invest in training themselves, is not the only, but still an important concern, as I explained in last week. To overcome that part of the problem, what businesses would need is either strong unions that can force employers to invest in their workforce, or state intervention that forces all employers to invest in vocational training. Regarding the former, there is little hope in the UK. Regarding the latter, the incoherence and frequency of policy changes in the area of vocational training themselves are considered by businesses to be part of the problem rather than the solution (see last week’s blog).
So, the issue of the low wage-skill-productive equilibrium is indeed a problem, the issue is that moving to a high skill, high productivity, high wage model that the Tories want requires fixing many different issues with the British economic model simultaneously and as such a complex plan. That’s where nothing that was said at the CPC2021 inspires any confidence that we will eventually get there. In fact, the proposed solutions that various top Tories hinted at presage a return to Thatcherism – Thatcherism 2.0 – once the pandemic is over, which will reinforce the root causes of the broken economic model rather than alleviating them.
…all the wrong answers
It was interesting to see how all the major figures in the Johnson government used their speeches seemingly not only to prepare the ground for the case Brexit leads to a ‘winter of discontent,’ but also for their future in the party after Johnson. One common thread in leading Tories’ rhetorical strategy was to try and ride the Johnsonite national-populist vague, while also starting to prove their more traditional conservative – indeed often strikingly Thatcherite – credentials of free-marketerism and fiscal austerity. This may also be driven by the fact that the new brand of populist Toryism championed by Johnson starts attracting criticism from within the party. Former Brexit minister, Steve Baker, for instance, was quoted as criticising recent tax rises and spending increases by saying "We're all socialists now." Some senior Tories seem therefore to be keen to prepare for the time after Johnson and their own future within the party, by reaffirming more traditional Tory values and policies. The result is that the answers that senior Tories suggest for current economic problems are likely to make the things that made people vote for Brexit worse rather than better.
1. Austerity
In terms of public finances, the writing has been on the wall for some time that Rishi Sunak’s uncharacteristically public spending policy would not last for ever. In the run up to the October 27 budget, he now clearly starts hinting at austerity. In fact, the return of austerity was ushered in with last week’s uncompromising and brutal cut to the universal credit uplift, which risks pushing millions of families into poverty. It is likely that more is to come, as Sunak tries to guide public finances into more orthodox conservative territory sooner rather than later, so that he has leeway to then loosen the purse strings in the run up to the next GE.
Yet, according to scientific research, austerity was arguably one of the main drivers of the Leave vote. Districts that experienced an average ‘austerity shock’ since the Coalition government came to power in 2010 saw the UKIP vote share – and consequently support for Leave – increase to higher levels than districts with little exposure to austerity. Austerity measures were hence partly responsible for the economic grievances that made people vote against EU membership. Sunak’s policies will not address the underlying issues, but rather will make them worse.
2. Free trade
In her ‘network of liberty’ speech, Liz Truss, now Foreign Secretary, continued to praise the benefits that free trade agreements (FTAs) will bring to the UK economy. Her popularity with voters is in no small part due to her role in concluding FTAs with a number of countries when she was Secretary of State for International Trade. (She claims her tally is 68 FTAs, which is misleading as all but a handful were roll-over deals of previously existing deals between the EU and the countries in question). Yet, like I argued before, the content of the FTAs is not what seems to matter to Truss or the current government. Rather, FTAs are mainly used as a mediatic reification of the promised ‘Brexit dividends.’ Substantively, the government’s hope seems to be based on a blind trust in free trade and on the assumption that any kind of trade deal will automatically benefit the UK economy.
That, of course, is a naïve hope and a policy that will reinforce, rather than solve, the issues that led many people in the country to vote for Brexit. Academic studies have indeed shown that the so-called “China Shock” – i.e. declining living standards due to an increase in imports of cheap goods from China that contributed to deindustrialisation in certain regions – is a stronger predictor of the level of Leave support than the level of immigration. The Foreign Secretary’s speech, which contained not just Thatcherite under-, but overtones, hints at an uncompromising free-trade stance, which may very well add an ‘India shock’ and an ‘Australia shock’ to the China shock. This all suggests that in this area too, things will be made worse rather than better for the British people.
The alternative to a blind belief in free trade is not protectionism or even autarky, but rather ‘embedded liberalism,’ i.e. a system where those exposed to higher levels of competition due to opening up of markets to foreign competitors are given the means to compete (for workers that typically means skills and productivity), or at least compensated them for losses through welfare policies that provide a safety net and thus reduce economic anxieties.
3. Foreign policy
In the area of foreign policy, Liz Truss, our new Secretary of State for Foreign, Commonwealth and Development Affairs, set out her vision for ‘Global Britain,’ which consist in creating a ‘positive, proactive, and patriotic foreign policy’ that will lead to establishing a ‘network of liberty’ among countries that share our values. Conversely, she promised to ‘be tough on those who don’t share our values and don’t play by the rules.’ While the last sentence seems to be primarily directed at China and Russia, it is interesting that the Gulf States and the ‘Visegrad 4’ (two of which have hardly made headlines for their liberal democratic credentials in recent years) are on the list of ‘friends and allies,’ but the EU is not. This may have some worried about how the new Foreign Secretary defines ‘our values.’
At the same time, Lord Frost continuous bumping his chest and threatening all sorts of people – including US President Biden – in all sorts of ways about the Northern Ireland Protocol. While Frost talks about a ‘robust response’ in case of EU retaliatory actions should the discussions around the implementation of the NIP fail, the EU has recently shown signs of diffusing tensions not just in Northern Ireland – where Commissioner Šefčovič has announced new proposals will be tabled next week – , but also concerning Gibraltar and by trying to calm the tensions between France and the UK over fishing licences.
The new EU proposals to solve the NIP issues will require a separate blog, but at first glance they seem genuine and go further than I would have thought the EU would be willing to go. The EU accepts now the principle of removing border controls for some goods that are destined for the Northern Irish market alone. This may illustrate the EU’s genuine concern over peace on the island of Ireland, but also the realisation that the EU’s tools to force the UK to implement the protocol are actually limited. One could have expected that this would be celebrated as a major victory by Frost and Johnson, but – as Chris Grey has argued in a recent tweet – the pattern amongst Brexiteers has been to use any concession by the other side to ask for still more rather than settle for a compromise. This pattern does seem to reproduce itself here. Lord Frost has already made it clear that he does not consider the proposals to go far enough. With a solution for the ‘sausage war’ on the table, he now shifts his attacks onto the governance arrangements and in particular the role of the European Court of Justice in overseeing the protocol. Keeping the tensions with the EU alive seems to have become a key string to the Brexit government’s foreign policy bow.
4. ‘Levelling up’
The promise of addressing the regional inequalities afflicting the UK is the one policy in Johnson’s repertoire that would address a real grievance that led people to vote Leave. People living in areas that have experienced long-term economic decline were much more likely to vote Leave not only when they were personally affected by that decline (through declining income or unemployment), but even when they were personally quite well off. The phenomenon that voters’ preferences are determined not by their own circumstances, but that of other people living nearby is referred to a ‘sociotropic voting,’ and illustrates the importance not just of individual but regional determinants of Brexit.
While asking about regional inequalities is the right question, the answer here too is wrong. As many have noted, the government’s plan seems to barely go beyond slogans and – worse still – seems to be used mainly as a tool to buy support in marginal conservative seats. But there is another problem with the government’s levelling up strategy: While the regional inequalities in the UK are real and serious (in fact amongst the worst in any developed country), we should not forget inequalities within regions. The South East of England, and London in particular, are often presented as the boom regions that contrast with the declining North of England. Yet, the number of Londoners who live in poverty despite having a job has increased dramatically in the past decades. For those people, ‘levelling up’ defined in purely geographical terms will hardly make a difference.
The reason why the government’s ‘levelling up’ strategy is the wrong answer is a result of the fact that rather than a policy driven by a genuine concern for the country, it is an electoral strategy – or rather a slogan – aimed at generatog support for Johnson in previously labour-voting constituencies. As such, it is part of Johnson’s obsession with power for the sake of power, rather than a genuine intention to solve the country’s problems. This leads to haphazard and opportunistic policies that will not address the root causes of people’s grievances.
Electoral consequences – The rise of tribalism?
Despite all the economic problems the country is facing and despite all the broken Brexit promises, the Conservatives maintain a solid 8% lead over Labour in voting intentions. 39% of people still intend to vote Conservative at the next GE. That’s only roughly 5% down from their vote share during the December 2019 GE. To many, the high level of electoral support – despite more than 137,000 deaths from Covid and the petrol chaos – will come as a surprise.
According to party-leader evaluation theories, support for a party leader usually depends crucially on voters’ evaluation of their “competence (intelligence, leadership) and character (trustworthiness, integrity).” Competence, in turn, is typically assessed – rightly or wrongly – in terms of how the economy is doing. Party leaders who are in power will be particularly harshly judged on these two dimensions. On neither of them would one expect Johnson to score particularly highly at the moment. So, why do 39% of Brits still intend to vote for Conservatives?
It may well be that it is simply too early for shortages to really bite and lead to a change in voting intention. Yet, a more worrying explanation may have some traction here, namely that Brexit has led to such a deep divide between Remainers and Leavers that it is increasingly resembling a tribal society. Studies of societies with strong tribal cleavages have shown that people show a much higher level of tolerance towards incompetence and corruption by politicians from the same tribe than would be rationally expected. This is explained by the fact that identity and loyalty to one’s tribe trump any other consideration. To me, this could constitute a pretty convincing – albeit deeply troubling – explanation of Johnson’s continuing popularity.
Whether or not Johnson benefits from unfaltering tribal support, Johnson’s populist Toryism is certainly not the end of history of British politics. Yet, for now Johnson does not have to be overly worried about the electoral impact of his botched Brexit for two other reasons: Firstly, as a skilled campaigner he will probably manage to steer people’s attention away from the economy, by further spurring international and cultural tensions with his stance on Northern Ireland, fishing rights, and – domestically – the ‘war on woke’ rhetoric. As such, recent signs that Johnson is not keen on continuing his culture war strategy may soon prove to be premature. Secondly, and more importantly, the opposition is still very much struggling to develop an alternative electoral strategy to the Tories’ new populism. Here, events this week and the CPC2021 provide further opportunities that the opposition would do well not to squander.
Time to open the Pandora’s box
Despite electoral success in formerly firmly Labour-voting working-class constituencies and despite all the populist discourse of Johnson’s government, Tory policies are becoming increasingly orthodox Tory policies that will hurt those constituencies. The Tory party dropping the mask during CPC2021 and revealing itself as the party of the ‘takers,’ means another golden opportunity is opening up for the opposition to regain ground in former working-class constituencies without adopting the ill-advised strategy of out-competing the Tories on nationalism.
The revelations in the so-called Pandora Papers investigation this week once again make for grim reading. Lady Green’s house buying spree weeks before BHS collapsed and Tony Blair’s name appearing in the papers, may have been the more shocking revelations in these papers from a British perspective. But generally speaking, the new leaks just remind us of one fact: that the British economic model is broken not so much – or not only – because of ‘the makers,’ but because of ‘the takers.’
Without denying that low wages are of course a problem, the fact remains that the bigger problem for Britain is that its economic model has become increasingly tilted towards the interests of the rentiers at the expense of both businesses and working people. The underinvestment in education due to constant pressure on government spending for instance hurts businesses as much as people relying on state schools for their education. And those pressures on government spending stem to an important extent from the fact that the government is shying away from taxing the rich and closing tax loopholes. Successive Tory governments bear an important part of the responsibility for these policies.
Electorally, this is not a problem for the Tory party, because British people have become very tolerant towards excessive money and wealth. This was illustrated this week by Newcastle United fans celebrating the takeover of their club by a Muhamed bin Salman, a despot and murderer. People do not seem to care but celebrate what the money will do for the club’s sporting successes. This is not a natural, immutable feature of human nature, but the result of decades of indoctrination in popular fiction, TV shows, and education that ‘greed is good’ and that wealth is the result of hard work and merit rather than privilege and extraction.
British people easily get upset about immigrants ‘stealing our jobs’ or ‘benefit thieves’ living off the welfare state. And yet, the government estimates the amount of overpayments of benefits for 2020 due to fraud and errors at £8.4bn. That is a lot of money that the state should not be spending. However, that amount compares to an estimated £31bn ‘tax gap’ for 2018/19. The term ‘tax gap’ designates the ‘difference between tax that is collected and that which is “theoretically due.”’ It arises because of tax evasion and tax avoidance schemes.
Putting it bluntly: The damage that ‘the super-rich’ do to the public purse is nearly four times as bad as the damage that ‘the poor’ do. And yet, the public does not seem to have taken much notice of the Pandora Papers. In fact, the Express even found a way of making the revelations sounds like another problem of the EU rather than one that afflicts most countries in the age of footloose capital.
Given the Tory’s close association with the rentiers and their confrontation with UK business, an alternative narrative explanation for what broke the UK model would provide a policy platform that could unite both workers and businesses.
That narrative could go something like this: The UK economic model has shifted away from a country of makers and workers to a rentier economy, where honest work does not pay off anymore and producing things is becoming more and more difficult, due – among other things – to underfunding of public infrastructure, education, and skill formation. This shift is not the fault of immigrants. In fact, as we now realise, immigrants made an important contribution to our economy. Instead, we now live in a country governed by plutocrats who have no stake in the country or in work anymore. This is illustrated by Farage’s famous admission that he would not hesitate to leave the UK were Brexit to go wrong. Governed by an elite who feels the country needs them more than they need the country, goes a long way in explaining the recklessness of Tory policies in the past two decades. Fixing the broken UK economic model will require removing the plutocrats from power so that the haemorrhage of money flowing into offshore tax havens can be stopped and country can recover its capacity to reform itself by investing in public goods.
Creating a narrative around the damage that rentiers are doing to the UK is not without political dangers of course. Recent examples of discursive political strategies aimed at rentiers include Victor Orban’s campaign against George Soros, which smacked of anti-Semitism. More generally, anti-finance political strategies have often been associated with anti-Semitism notably in Nazi Germany (the critique of the so-called ‘Hochfinanz’ [DE]). But the critique of finance has also been a hallmark of the progressive movement in the US, illustrated by Supreme Court Justice Louis Brandeis’s ‘Other People’s Money.’
The Pandora Papers show just how widespread the problem of rentierism has become and that we can no longer ignore it as a root cause of many of the ills afflicting our country. Convincing the public that this is where our problems start can become an electorally powerful strategy now that the Tory’s have dropped their mask. Such an alternative discourse will take years and years to influence people’s perceptions, just like the toxic discourse of ‘greed is good’ took decades to crowd out moral behaviours in people’s minds. But it is a crucial task that the opposition needs to lead on and its is time that a courageous opposition leader dares opening up that Pandora’s box.