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Conservatives should react to Miliband’s socialism with a pro-market, rather than a pro-business, agenda

    Prior to Ed Miliband’s speech, I wrote an article for City AM which argued that the policies emanating from the Labour conference were distinctly small steps onto the socialist path. Well, that was until I heard Ed Miliband’s speech. Then I realised that what he said were particularly large steps onto the socialist path. Not only was there the much-discussed energy prize freeze, but we also saw an apparent threat to private property rights if landowners failed to develop. There was the push for the minimum wage increase. There was the “race to the bottom” shtick, straight from the socialist playbook. There was the “millionaire’s tax cut” gambit. Playing off small and big businesses against each other. Declaring the NHS the “the greatest institution of our country” and promising to reverse reforms of it, irrespective of outcomes. Not just opposing the implementation of the so-called bedroom tax, but apparently opposing it in principle. Labelling the Conservatives as being for big business, despite being the party that echoes big business opinion on the EU and the need for an industrial policy. The call for punitive taxes on the rich. The list goes on.

    We know that socialism has a record of almost unmitigated failure. Surely the British people wouldn’t opt for it? Yet this socialistic populism may just be effective for Miliband this time around, as Matthew Sinclair explained in the case of energy prices yesterday. Why? Well, in the post-financial crisis world, there really is a strong anti- big business feeling among the public. This is partly a throwback to the financial crisis and the behaviour of the banks, of course. And it mainly extends to the perceived oligopolistic and monopolistic markets in things like energy and rail. But for many it extends further to other big companies which are perceived to carve out special advantages for themselves in tax law and regulatory requirements. At a series of recent CPS lunches, we asked the editors of many of the major centre-right leaning newspapers in the UK whether, if asked, their readers would say they disliked big government or big business more intensely. They all said “big business”.

    This presents a problem to the Conservatives in reacting to Miliband’s speech. I detect that many on the right thought that the key to the next election would be to present the choice of Prime Minister: David Cameron or Ed Miliband. This may still be partially true. But if Miliband is genuinely going to put forward a left-wing populist agenda, then it won’t be enough for Conservatives just to reflect on the character of the two leaders, they’ll also have to explain why Miliband is wrong and how their solutions to perceived problems will do better. They will have to engage in the battle of ideas. Because Miliband has hit on a number of issues, specifically the energy market, where people do think there is a problem. His analysis of the symptoms is right. But his overall diagnosis and treatment is absolutely wrong.

    Now today there will be a range of voices from the energy industry and big business coming out to oppose Miliband’s agenda. There will be a temptation for Conservatives to just go along with what they say. To be pro-business against the socialistic tendencies of the Labour party. This has happened to many conservative parties through history. In opposition to socialism, conservatives unite with the business lobby. But this would be a mistake for the Conservatives, as it would play in to the narrative that Miliband is trying to create. In his speech, Miliband (rightly, as it happens) attacked David Cameron’s global race narrative. The problem with the global race narrative has always been that it implies that someone has to lose – even though there is no evidence of a competitive theory of development. The term and its use plays into Miliband’s idea that the Conservatives believe you have to slash wages and conditions to “compete” with countries like India and China. As Philip Booth has written, a very noble set of aspirations risks being ruined by a simplistic, poor analogy.

    This is the problem for Conservatives. The Labour party is painting them as the party of big business and vested interests. At a time when people are very concerned about energy prices and rail prices and the cost of living more broadly, simply echoing the views of established big companies will not do.

    Instead, what the Conservative party should do is emphasise a pro-market rather than a pro-business agenda. This is a key distinction. The Conservatives have to be willing to explain why and how certain markets appear rigged against consumers. How it’s more often than not due to current government interventions and regulations, which crowd out competition and drive up prices. How big companies lobby to tilt markets in their favour, and as such to prevent competitors and protect their profits. As such, how big governments and big business are often two cheeks of the same backside. Being pro-business is thus not necessarily the same thing as being pro-market: the first is pro-producer, whereas the second is pro-consumer. The Conservatives have to be the party of competition, whether it be in the area of public services or markets for goods and services. It’s only through effective competition, or the threat of it, that we can the continual improvement in quality whilst keeping prices down.

    As Professors Luigi Zingales wrote in his book “A Capitalism for the People” (a book that should be on all MP’s bookshelves): “Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticising business, because they assume they will be seen as criticising the free market. But we need to stand up and criticise business when business is not helping the cause of free markets.”

    This in part means a difference in language as well as a difference in policy. The left’s knee-jerk reaction, set out clearly in Ed Miliband’s speech, is that when there is a problem, government should intervene. Prices rising too much? Cap them. Too much inequality? Tax wealth. Childcare too costly? Subsidise it.

    It is lazy, reactive policy which never works as intended. But it’s popular. Because people do want something done today to deal with perceived problems. Pro-market supply-side reforms, to induce competition and reform regulatory structures are much harder to sell. They are often unpopular with both business and the unions. Think of the struggles Mrs Thatcher went through – many of her policies were unpopular to begin with. But the eventual results weren’t. Likewise, inducing more competitive open pressure or changed regulatory structures in energy, rail and banking will be hard. Vested interests will oppose it. Many will object to the sort of deregulation required to foster more enterprise more broadly. But only by getting on and doing it, whilst providing a robust critique of Miliband’s ideas, will the Conservatives be able to alleviate people’s legitimate concerns in these areas.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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