Show me the money

How can we raise public investment and direct it most productively?

Towering columns

For The Times, Juliet Samuel argues that the Shadow Chancellor lacks a credible plan to overcome Treasury orthodoxy and resolve our underinvestment problem.

The shadow chancellor is happy to stick with the Treasury’s deficit targets to try to control day-to-day spending — probably sensible. But when it comes to scaling up government investment, particularly outside the southeastern regions favoured by the mandarins’ models, she will have a battle. And she has pre-emptively given away her most powerful tool in that battle: a manifesto pledge to spend £28 billion a year on capital projects, which, however vaguely allocated, would at least have given her a crowbar to open the Treasury’s tight fist.

Every new penny she wants to spend, whether for house insulation or better roads or schools serving the workforce of the Barrow submarine shipyard, will be run through the same Treasury spreadsheet that has strangled our civil nuclear industry, new vaccine factories, northern railway upgrades, gas storage and so on. As for favouring British production or skills training over cheaper foreign suppliers and migrants, the pleasant, chin-stroking mandarins will put paid to that idea, with dismal forecasts briefed to influence the OBR and sober warnings about investor confidence.

Worse, Reeves and her team appear to have no idea what they’re in for. They seem to think that ministers arrive, dispense orders and policy changes. It does not seem to have occurred to them that the Tories are barely attached to the steering wheel. Labour’s entire plan to tackle this appears to be that some unit in the Treasury with “growth” in its title will be given more influence. The lessons of the Thatcher and Blair eras — that controlling the Treasury requires strong political leadership by a team of analytical depth and unshakeable commitment — are being ignored.

For The Telegraph, Fraser Nelson sets out the economic consequences of furlough, including the current crisis in welfare.

In the end, Britain has turned out to be one of the few countries in the world whose workforce is still smaller than it was before the pandemic. Furlough was a powerful drug initially designed for three months. It ended up being used on and off for a year and a half, with £70 billion given to 11.7 million people. Companies, not all of which actually existed, were helped with loans. That was the short-term cost. We’re only now starting to see the longer-term effect. 

So it’s nonsense to say – as the Conservatives are now doing – that Sunak “saved” 14 million jobs. Most who took furlough would have been safe anyway, as we saw from places without such a safety net. Yes, far more jobs would have been lost – at least for a while. But an even greater number would have probably come back later and at better salary levels. This has been the experience of the United States, whose economy is now roaring…

…It’s wrong to blame furlough, but it certainly is a contributing factor. The longer you stay out of work, the more reluctant you are to return to it: this is a basic fact of economic life. It helps explain why over-50s left the workforce in such numbers. But the real problem is one that started a year before furlough began: people saying they’re too sick to work. Five years ago, 2 million were in this category. Now, it’s 2.7 million. That’s the equivalent to losing the working-age population of Birmingham, our second city.

At The Spectator, Rupert Darwall explains how the Conservatives became stuck in a Net Zero trap that is undermining national energy security.

Huge subsidies for intermittent renewable energy generation capacity mean that power stations are operated less efficiently. Meanwhile, the government’s policy of pushing up the artificial cost of carbon plunged the ‘Big Six’ energy companies’ thermal generators into loss. In 2014, the Big Six recorded losses of £1.6 billion on their gas and coal-fired power stations. As Rudd observed in 2015, ‘we now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention’.

Rather than address the fundamental reasons why investors shun gas, Coutinho offered up a mishmash of contradictory soundbites in last week’s speech. Acknowledging that new gas would be permitted to emit carbon dioxide for a ‘brief window of time’, the Energy Secretary said that as more wind and long-duration storage is built, these new power stations will run less frequently. But this will make it an even steeper climb for investors to recover the capital expenditure sunk into the plants. 

Furthermore, new gas power stations will be required to be ‘Net Zero ready’ when they’re built. Either they must be able to connect to carbon capture and underground storage (CCUS) or have turbines that can also burn green hydrogen. On CCUS, the government is making a £20 billion bet on what Coutinho calls ‘this game-changing technology’. CCUS needs costly pipeline and storage infrastructure, not to mention that the post-combustion removal of carbon dioxide incurs an additional energy penalty. Outside the oil and gas industry, where CCUS is used to enhance oil and gas retrieval, the technology has yet to demonstrate commercial viability and quite probably never will. Betting on silver bullets seldom turns out well. 

For The Telegraph, Robert Jenrick criticises the liberal understanding of Britain’s “international reputation” based on elite perception instead of national interests.

What is deemed to strengthen or weaken our “international reputation” invariably reflects the metropolitan elite’s ideological prejudices. The internationally mobile – who David Goodhart would describe as the “anywheres” – have an interest in preserving their social status at home and abroad. So what they really mean when they invoke our “reputation” is not our true national status, but their own reputation and employability among foreign liberal elites. What reception would a crackdown on illegal migration receive in Davos? How will the UN react? 

Hypocrisy abounds. Some who protest about our reputation seem curiously willing to sell out once private interest has replaced public office. Nick Clegg is Meta’s lobbyist-in-chief. Tony Blair has established himself as salesman for hire by foreign dictatorships that need reputation laundering. Contrast that with Jim Callaghan who retired to his farm, or Margaret Thatcher who established a foundation to perpetuate her ideas rather than her income. The dignity of those who exercise power is at its most evident when they no longer wield it…

…Perhaps the most startling example of this liberal prejudice is their skewed perspective on immigration and defence. Dare to criticise the fact that the European Convention on Human Rights compromises our security and you’ll be greeted with cries from the Left: leave and you’ll enter the club of dictators, Belarus, and Russia. They never admit that it would mean joining our Five Eyes allies. These appeals to our “reputation” ring hollow to a public more concerned by their ability to live in a country with secure borders, safe streets, good jobs and cheap energy. The vanity of the liberal elite is a “luxury belief” in action. 

At Compact, Thomas Gallagher reflects on the arrival of Portuguese populism and how it captured the support of young voters.

The Chega party has steered a prudent course away from liberal economics in its bid to steal a march on its established rivals. Ventura’s approach is more Keynesian than Friedmanite. His principal support comes from young and early-middle-aged males from Lisbon and the south, ironically the principal strongholds of the revolution in its most radical phase. 

For years, opinion surveys have shown the Portuguese to be more socially conservative than most other nations in Western Europe, and certainly more so than their Spanish neighbors. There are higher levels of skepticism about state efforts to adapt society to global liberal norms. Unhappiness about a proposed new law permitting euthanasia partially explained why the president recently vetoed the measure. Chega articulates the view that Portugal’s prevailing, relatively unwoke model of race relations is broadly sound. To apply divisive North American norms is asking for trouble. Ventura’s party accordingly opposes large-scale immigration and reparations to former colonized countries.

Chega argues that cultural policies should show respect toward Portugal’s role in Christianizing different regions of the world, not just reflect on the downsides of imperialism. He slams the mainstream parties for importing bland cultural norms from the rest of Europe and the United States at the expense of Portugal’s own distinctive cultural heritage. At least for now, many of the dissatisfied in society—above all, the young—place their trust in Chega, because it is seen as an antidote to an untouchable political class. That might prove to be wrong unless Ventura is able to bring able people, rather than malcontents, with him into the next parliament. 

For The Spectator, Dean Godson describes the role of Leo Varadkar’s overreach during the Brexit negotiations in his recent political downfall.

The EU had more and more to face the fact that the Irish-informed solution of 2017 – the Northern Ireland Protocol – lacked a grounding in the realities of Northern Ireland’s economic, cultural and political integration in the UK. When the problem came finally to be settled it bore little trace of Irish influence. The Windsor Framework bears no hint of Irish input, its name alone is a refutation to any suggestion of that. The most recent deal that led to the restoration of Stormont, ‘Safeguarding the Union’, is a further rebuff to the overreach of Dublin, in which its concerns have been rejected and whose absence from creating a solution to the political crisis in Northern Ireland is noteworthy…

…Varadkar’s refusal to engage with the UK to solve problems on the border reflect a wider failure to solve problems south of the border. In the 2020 general election, his party lost 15 seats and had its worst result since 1948. He shared power with Fianna Fáil’s Micheál Martin, serving as his deputy before returning to the premiership in 2022. 

Varadkar was more abrasively nationalist than Micheál Martin whose ‘Shared Island’ initiative won respect from Unionists who were generally cool or hostile to Varadkar. He mentioned but did not specify in his resignation speech policy failures, but most commentators agree the biggest were the Republic’s chronic housing shortage, its creaking health service and failure to address popular discontent on immigration.

Wonky thinking

For Engelsberg Ideas, David Cowan explores the deep roots of a resurgent Canadian conservatism in the western provinces. After the 1993 election wipeout, the Right renewed itself by reclaiming a rich heritage of politics based on defending the national character and interests of Canada and its working classes.

Poilievre made his political breakthrough as the ‘populist’ candidate. Liberal media has chosen this term to explicitly tie Poilievre with the likes of Donald Trump without thinking too deeply about the man himself. Poilievre is undoubtedly a populist, but he is drawing on a political tradition with distinctively Canadian roots. The western provinces, the heartland of modern Canadian conservatism, has long been fertile ground for populism. Since the late 19th century it has produced grassroots campaigns such as the United Farmers of Canada, Co-operative Commonwealth Federation, and social credit movement that have railed against the federal government in Ottawa.

Much like the agrarian populism of the western and southern United States, the Canadian prairies have supported successive movements opposed to the nation’s urban elites and the concentration of political and economic power. This fed into politics on the Left, including the growth of unionised labour and the emergence of the New Democratic Party. Canadian populists also embraced right-wing agendas such as social conservatism. Over time, the centre of gravity in Canadian conservatism shifted from east to west, as the nation made the journey from being a British Dominion to an independent power in the western hemisphere. This populist heritage is fundamental to understanding the evolution of Canadian conservatism and how it recovered from the nadir of the 1990s.

One of the founding fathers of Canadian Confederation, Sir John A. Macdonald, was leader of the Liberal-Conservative Party, which bound together Ontario Tories, Quebec conservatives, and western reformers. Macdonald helped drive forward the momentum behind the British North America Act 1867 and served as the nation’s first prime minister. Alongside loyalty to the British Empire, Macdonald upheld Canadian autonomy at a safe distance from the influence of the United States. This led to an ambitious programme of reform and investment, building the Canadian Pacific Railway, founding the North-West Mounted Police, annexing territory, and raising protective tariffs. For the following century, Canadian conservatism would be defined by its robust defence of national sovereignty. This Canadian take on one nation conservatism sought to appeal to every province, which meant balancing the interests of both east and west of the nation.

The first Canadian Conservative attempt to direct a populist message specifically to the west arrived in 1957 when John Diefenbaker became prime minister. It was the first time the PCs had held office since 1935. Born in Ontario, Diefenbaker’s family moved to Saskatchewan, where he grew up and entered parliament. In domestic politics he was supportive of expanded civil rights for women and indigenous peoples, passing the Canadian Bill of Rights, and defended the economic interests of western farmers. Abroad, he maintained a populist anti-American foreign policy that was sceptical of free trade. Diefenbaker declared: ‘This is the vision: One Canada. One Canada, where Canadians will have preserved to them the control of their own economic and political destiny. Sir John A. Macdonald saw a Canada from east to west: he opened the west. I see a new Canada – a Canada of the North. This is the vision!’ But the vision failed. After refusing to accept nuclear missiles from the United States, Diefenbaker’s government collapsed, and he lost the 1963 federal election.

From Macdonald to Diefenbaker, the Canadian conservative tradition had made tremendous impact on the nation. It fell into decline following the election of Lester B. Pearson and Pierre Trudeau, who modernised Canadian politics and society, moving away from British influence and embracing American ties. The term ‘Red Toryism’ was coined for this body of thought, and philosopher George Grant wrote its eulogy in Lament for a Nation: The Defeat of Canadian Nationalism. Losing its policy substance, Red Tory became another term for technocratic conservatism, alongside the emergence of labels such as ‘wets’ in Britain or ‘RINOs’ in the United States. Combined with the influence of the New Right led by Ronald Reagan and Margaret Thatcher, the Canadian Conservatives transformed into a free market and pro-American force under prime minister Brian Mulroney. It also become more removed from the western provinces that Diefenbaker had won over.

At Project Syndicate, Mordecai Kurz questions the longstanding Friedmanite link between capitalism and democracy. Concentrated market power in the American economy, especially tech, has weakened the political power exercised by democratic institutions accountable to citizens rather than shareholders.

The First Gilded Age (1870-1914) is an essential reference point for comprehending the current moment, because its anti-democratic worship of business power undermined the optimistic Enlightenment view of markets. True, it was a period of extraordinary technological and economic progress, delivering most of the major twentieth-century innovations. Between 1895 and 1904, however, more than 2,000 firms were merged into 157 large conglomerates, leaving virtually every sector of the US economy dominated by a powerful monopolist.

Those who created these trusts believed they were doing God’s work of strengthening the economy by saving it from “ruinous” competition. Supported by the ideas of the eugenicist Francis Galton and Herbert Spencer’s theory of social Darwinism, business leaders saw themselves as the superior, intelligent men who had prevailed in the process of natural selection.

This selection process also applied to their firms, through which they were building a new society in which a few strong men would lead. It followed that small and weak firms must be eliminated or swallowed up within strong monopolies. The latter were seen as superior to all the unfit firms that were going bankrupt in frequent depressions. The big monopolies were also considered progressive organizations. As John D. Rockefeller put it, monopolization was unstoppable because it was “the law of God.”

These ideas were rejected by Progressive reformers and those pursuing antitrust enforcement under President Theodore Roosevelt after 1901, and under President Franklin Roosevelt in the New Deal era. Americans in these periods chose democracy and rejected the power-worshiping oligarchy, resulting in a long era of economic growth with shared prosperity.

But that story ended in 1981, when renewed laissez-faire economic policy led to the contemporary techno-winner-takes-all economy. In this Second Gilded Age, the worship of power and wealth has returned with a vengeance. Capitalism’s strong incentives for innovation and growth remain, but the survival of democracy hinges on whether the system’s most destructive effects can be contained.

Book of the week

We recommend Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed by James C. Scott. The author reviews the violent and costly failures of state planning, from Soviet collectivisation to the Great Leap Forward, citing the inability of central planners to understand the intricate and complex interdependencies that exist in civil society.

I shall argue that the most tragic episodes of state-initiated social engineering originate in a pernicious combination of four elements. All four are necessary for a full-fledged disaster. The first element is the administrative ordering of nature and society-the transformative state simplifications described above. By themselves, they are the unremarkable tools of modern statecraft; they are as vital to the maintenance of our welfare and freedom as they are to the designs of a would-be modern despot. They undergird the concept of citizenship and the provision of social welfare just as they might undergird a policy of rounding up undesirable minorities.

The second element is what I call a high-modernist ideology. It is best conceived as a strong, one might evens ay muscle-bound, version of the self-confidence about scientific and technical progress, the expansion of production, the growing satisfaction of human needs, the mastery of nature (including human nature), and, above all, the rational design of social order commensurate with the scientific understanding of natural laws. It originated, of course, in the West, as a by-product of unprecedented progress in science and industry.

High modernism must not be confused with scientific practice. It was fundamentally, as the term "ideology" implies, a faith that borrowed, as it were, the legitimacy of science and technology. It was, accordingly, uncritical, unskeptical, and thus unscientifically optimistic about the possibilities for the comprehensive planning of human settlement and production. The carriers of high modernism tended to see rational order in remarkably visual aesthetic terms. For them, an efficient, rationally organized city, village, or farm was a city that looked regimented and orderly in a geometrical sense. The carriers of high modernism, once their plans miscarried or were thwarted, tended to retreat to what I call miniaturization: the creation of a more easily controlled micro-order in model cities, model villages, and model farms.

High modernism was about "interests" as well as faith. Its carriers, even when they were capitalist entrepreneurs, required state action to realize their plans. In most cases, they were powerful officials and heads of state. They tended to prefer certain forms of planning and social organization (such as huge dams, centralized communication and transportation hubs, large factories and farms, and grid cities), because these forms fit snugly into a high-modernist view and also answered their political interests as state officials. There was, to put it mildly, an elective affinity between high modernism and the interests of many state officials.

Like any ideology, high modernism had a particular temporal and social context. The feats of national economic mobilization of the belligerents (especially Germany) in World War I seem to mark its high tide. Not surprisingly, its most fertile social soil was to be found among planners, engineers, architects, scientists, and technicians whose skills and status it celebrated as the designers of the new order. High-modernist faith was no respecter of traditional political boundaries; it could be found across the political spectrum from left to right but particularly among those who wanted to use state power to bring about huge, utopian changes in people's work habits, living patterns, moral conduct, and worldview. Nor was this utopian vision dangerous in and of itself. Where it animated plans in liberal parliamentary societies and where the planners therefore had to negotiate with organized citizens, it could spur reform.

Only when these first two elements are joined to a third does the combination become potentially lethal. The third element is an authoritarian state that is willing and able to use the full weight of its coercive power to bring these high-modernist designs into being. The most fertile soil for this element has typically been times of war, revolution, depression, and struggle for national liberation. In such situations, emergency conditions foster the seizure of emergency powers and frequently delegitimize the previous regime. They also tend to give rise to elites who repudiate the past and who have revolutionary designs for their people.

A fourth element is closely linked to the third: a prostrate civil society that lacks the capacity to resist these plans. War, revolution, and economic collapse often radically weaken civil society as well as make the populace more receptive to a new dispensationL. ate colonial rule, with its social engineering aspirations and ability to run roughshod over popular opposition, occasionally met this last condition. In sum, the legibility of a society provides the capacity for large scale social engineering, high-modernist ideology provides the desire, the authoritarian state provides the determination to act on that desire, and an incapacitated civil society provides the leveled social terrain on which to build.

Quick links

Inflation dropped to 3.4% in February 2024, down from 10.4% in February 2023…

…and the Bank of England held interest rates at 5.25% for the fifth time in a row.

Shadow Chancellor Rachel Reeves delivered the Mais Lecture 2024, calling for a new model of economic management.

Labour reached a 25-point lead and support for Reform UK hit 15%, just four points behind the Conservatives.

Polling showed that 50% of 2019 Conservative voters want higher state spending on public services.

On issues beyond immigration, Reform UK voters support radical positions such as abolishing the House of Lords and removing private school tax breaks.

The Budget 2024 helped tax rates for average earners reach historically low levels, especially for personal National Insurance, despite the high tax to GDP ratio.

The Work and Pensions Secretary announced new measures to help 150,000 people signed off work for “mild” conditions to find employment.

Research from the Lancet found that falling birthrates will make the UK dependent on immigration for population growth for the rest of the twenty-first century.

Relative child poverty increased significantly in 2014 to 2021 and 3.3 million children now live in absolute poverty.

UK housebuilding has fallen behind France and Germany, needing to build at least 5 million new homes to catch up.

Hong Kong passed a new national security law targeting “external interference” and introducing a sweeping definition of “state secrets”.

A Treasury consultation on introducing a carbon border adjustment mechanism has opened, focused on carbon intensive imported goods such as aluminium and steel.

The size of the US motor vehicles industry relative to GDP was 60% of the global average in 2020, unlike Mexico’s which was three times larger.

Network Rail was criticised for displaying an Islamic hadith on a departure board at King’s Cross for Ramadan.

The coke ovens at Port Talbot closed, producing the last coke made in the UK.