This week’s Conservative Party conference will probably make for a sorry spectacle. The weakness of the prime minister means no end to the atom-splitting effect of Brexit on the Party. The truce that her Florence speech was supposed to bring was gone in a moment. Indeed, it’s hard to see the party as a credible political force in the country, or providing political leadership to its followers—and electoral waverers—while the status quo endures. Worse, if things could be, is that the Conservative Party’s principal brand, managing the economy, is under threat.
Although Jeremy Corbyn assured the Labour conference last week that brand had been destroyed, the latest Yougov polling numbers suggest that the Conservatives still have a 12 per cent lead on “managing the economy in general.” Nevertheless, the brand is certainly under threat from Brexit directly, and indeed indirectly as Brexit could paint the party into a single-issue corner where all its energy is consumed.
Conservatives should know what it means to leverage, and to lose the brand. After the Labour Party’s economic credibility dissipated in the economic and IMF crisis in the second half of the 1970s, the Conservatives succeeded in building and preserving their brand from 1979 until 1992. Then though, they lost it irreversibly in the ERM crisis, even though the economy bounced back in the period leading to Tony Blair’s first Labour victory in 1997. The Conservative Party brand was re-leveraged after the financial crisis but how damaged is it now?
Voters can sometimes be quite resilient politically during cyclical ups and downs in the economy, as was demonstrated in the 2015 election, and even, it should be said until earlier this year. Something, though, has clearly snapped. Corbyn told the Labour conference last week that 2017 was the year when politics finally caught up with the financial crisis in 2008, and Theresa May responded the next day by acknowledging that since then the economy hasn’t been “working as it should for everyone.” On this at least, they agree.
“The conventional economic scorecard may be giving a misleading impression as to the strength of the Conservative brand”May said as much when pitching for the party leadership last year when she spoke to serious public concerns about stagnant real wages and housing. In a shift leftwards, she also said she wanted to change the systems of corporate pay, governance and board room representation, and develop an industrial strategy. Few people will remember her words, and no one can point to anything the government has done since she became leader to address her utterances. But these things matter now more than they did.
In fact, the conventional economic scorecard may be giving a misleading impression as to the strength of the Conservatives’ brand. Yes, we have low recorded unemployment, but there is consternation about more structural and, by implication, longer-term problems, such as weaker trend and productivity growth, and the persistent stagnation in wages and salaries, especially with a weak Sterling pushing up inflation. The government will almost certainly respond soon by relaxing the public sector pay cap, but what the country needs is a strategy to boost productivity and manage the consequences of automation. Conservatives don’t have one and, perversely, concerns about automation and technology have reached the point that Labour has gone Luddite, arguing that we should tax it.
The government’s brand strength on budgetary policy also seems to have gone stale. Even though it has missed its deficit targets, the heavy lifting of cutting the structural budget deficit of almost 9 per cent of GDP in 2010 to about 1 per cent of GDP or so in the early 2020s has been done. On current trends and policies, public debt is close to peaking in the next year or two. But right or wrong, the public doesn’t seem to worry all that much about budget deficits any more.
The aftermath of the financial crisis, and especially Brexit, have blinded the Tories to one of the key issues in brand perception. Just as companies have to understand their customers, political parties have to understand their voters. Both party leaders gave us a strong steer last week regarding their positioning. Corbyn talked about the UK’s “failed model of capitalism” and how he believed a new consensus was emerging in favour of a socialist economic and political agenda. May’s riposte was that in spite of the more dysfunctional developments since the financial crisis, capitalism was still the “greatest agent for collective human progress ever created.”
“The Tories are not listening to Adam Smith on the virtues of trade by withdrawing from the biggest Single Market in the world”I’m pretty sure that sewage systems, clean and accessible drinking water and antibiotics would top my list but you know what she was getting at. Warts and all, capitalism has brought the highest living standards to most people, and lifted hundreds of millions out of poverty. Just ask the Chinese. No one ever pretended that it is perfect, or that it hasn’t in the past succumbed to crisis, as now, but it can also undergo renewal. What matters is how we manage it.
Adam Smith, no less, founding father of modern economics and advocate of the free market, knew this 241 years ago, when he wrote the Wealth of Nations. He was no slouch in calling for robust public institutions to help capitalism function more effectively and to protect the interests of the poor and disadvantaged. He was also adamant about the need for robust regulation to stop anti-competitive practices by “dealers” (manufacturers and merchants in his day) from “bringing disadvantage upon the public.”
The Tories are certainly not listening to Smith on the virtues of trade by withdrawing from the biggest and most successful Single Market in the world. Yet, they are also paying insufficient attention to corporate governance to influence the technology-driven distribution of rewards in favour of capital; stop anti-competitive practices (such as price and market collusion and rigging) and abuses of power in, for example, the water industry; and alter executive compensation and stock option incentives, including in privatised utilities and public corporations, to favour investment.
This week, Conservatives should be wondering at their conference if they have a leader who can remain faithful to the liberal economic worldview while embracing these ideas, thus re-strengthening the brand. I’m not holding my breath.
