The single market is essential for the free enterprise Margaret Thatcher championedby Oliver Kamm / January 24, 2018 / Leave a comment
These are strange times in Tory politics. A rational conservatism would understand that, while the state has a crucial role in economic management and welfare provision, its knowledge is limited. Discretionary intervention has unanticipated costs and diverts scarce resources to uses that aren’t efficient. The primary role of government in economic management is thus to maintain a framework of rules within which consumers, businesses and investors have the confidence to take long-term decisions.
Fortunately, there’s an institution that embodies this principle and puts it into effect. It’s the European Union, which administers a framework of rules on competition, mergers, cartels and state aid. Its legislation is intended to prevent firms from colluding in anti-competitive practices, like price-fixing or predatory pricing in order to drive a weaker competitor out of the market. Last year the European Commission imposed a fine of €2.4bn on Google for abusing its dominant market position in search engines. Also under European legislation, cartels are illegal and corporate mergers can be limited or prevented if they reduce competition. And EU treaty law prevents national governments from giving unfair state aid to their own corporate sectional interests.
This is an approach that Tories should instinctively sympathise with. The rules are applied, moreover, with a pragmatism that conservatism also prizes; industrial subsidies fall foul of rules on state aid but development funding for poorer regions does not. It is a sad irony that Cornwall, which voted for Brexit in 2016, is set to lose £60m in annual funding from the EU when Britain leaves.
This body of legislation is part of the European single market, an ambitious scheme that has eliminated customs duties, and non-tariff and regulatory barriers among its members. Tories should feel gratitude to a political leader who was at the heart of this project: Margaret Thatcher. She signed the Single European Act which moved forward the required legislative programme to achieve the single market by the end of 1992.
As Kenneth Clarke remarks in his recent memoir Kind of Blue, Thatcher personally led “the biggest single leap forward that the European project made at around this time [the 1980s]. She was the leading advocate of the creation of a proper single market to replace the old ineffective tariff union known as the Common Market. It was Margaret, inspired by free-market enthusiasm, who drove this through with the Single European Act of 1987.”
Exactly so. If there is one politician who exemplifies the Thatcherite ethos on Europe, it’s Ken Clarke. As is well known, Thatcher became increasingly strident in her hostility to the integration of Europe (her speech in Bruges in 1988 instantly became a rallying call for eurosceptics), yet in government she was absolutely central to advancing it. She liked to get things done; and she got this done. Clarke’s own support for a common currency is likewise impeccably in accord with the same market-driven philosophy. The single market is made more complete with the elimination of transactions costs and uncertainty costs. This is especially important for the free enterprise system that Thatcher championed. Big companies have little trouble hedging standard transactions in the forward markets but it’s far more difficult to hedge long-term transactions. Companies are thereby deterred from undertaking what would otherwise be profitable investment decisions.
“If there is one politician who exemplifies the Thatcherite ethos on Europe, it’s Ken Clarke”
Now, I’m not a Conservative. Though I share the stress of economic liberalism on eliminating barriers to trade and investment, I prefer the European model of more extensive welfare provision, greater equality of outcome and higher marginal tax rates, and I want more stringent controls on the disruptive short-termism of institutional investors. But I recognise the value of the price mechanism as a signalling device in allocating scarce resources, and the huge productive gains generated by market capitalism.
The modern Conservative Party takes a different position, epitomised in its nativist hostility to immigration. You’d imagine that Tories, being humble about what governments can know, would avoid fanciful schemes to pick immigrants who would make the best contribution to the economy and public welfare. Instead, today’s Tories have an irrational belief in the wisdom of bureaucracies and ignore the power of incentives. A pragmatic immigration policy would recognise the importance of making Britain an appealing place where enterprising immigrants can thrive; then they will wish to come.
All of this is far outside where Conservatism now stands. The Tory Party has become an ideological bolthole for mainly elderly people who resent the achievement of ambition and wish to restrict it, and whose instinctive approach to foreigners is to be suspicious.
If there was a rational opposition party, committed to achieving collective Europe-wide goals, it would mercilessly expose the contradictions and hypocrisies of Tory policy on Europe. Unfortunately there isn’t, because Jeremy Corbyn’s Labour Party bizarrely supports the government’s policies on Brexit and immigration. But that’s another story.
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