Where is the "centre ground"?

Conservatives cannot win unless they move towards the country's centre of political gravity, not that of SW1

Towering Columns

In the New Statesman, John Gray warns Conservatives not to revert to a liberal “centrism” which to voters is extreme, and predicts that Sir Keir Starmer will continue to practise consensus politics.

Above all, the Conservatives were undone by their attachment to a confected centrism. Voters deserted to an extreme party because the mainstream had been captured by liberal extremism. Centrists created Reform UK by delegitimising conservatism among Conservatives. The party will not recover if, under a banner of “moderation”, it persists in disparaging and ignoring voters in Britain’s actually existing centre ground.

There was nothing moderate about the project Rishi Sunak inherited from David Cameron. Beyond the Westminster village, there is no consensus on the regime of mass immigration, systematic defunding of state services, rapacious privatisation of utilities, and supine obedience to progressive fads orchestrated by Cameron and his modernisers. The avowed heir to Tony Blair was continuing an experiment in market liberalism begun by Margaret Thatcher over 40 years ago. If Blair added mass immigration, Cameron turned the experiment into an assault on the state. A reductive and hyperbolic version of Thatcherism has ruled British politics ever since. For all Reeves’ rhetorical “securonomics”, Starmer’s Labour is only the latest, if possibly the last, variation on the market-liberal template.

…In its current iteration, progressivism is a hodgepodge of technocratic authoritarianism and liberal legalism. For advocates of technocracy, conflicts of values are problems soluble by experts. Liberal legalism advances a different anti-political vision: basic human needs should be defined and protected in a system of rights. (Gordon Brown’s planned constitutional revolution would entrench welfare benefits in precisely this way.) If there are conflicts within the system, they should be settled in courts of law…An amalgam of these ideas informs Labour’s programme. Technocratic authoritarianism inspires the effective veto over fiscal policy that will be given to the Office for Budget Responsibility, while judges will be given increased power to make essentially political decisions about the allocation of resources. A good example of the latter is the ruling of the Supreme Court that emissions from burning fossil fuels must be considered when approving new drilling sites. This is not elective dictatorship of the kind attacked by the Conservative politician Quintin Hogg (later Lord Hailsham) in the Sixties and Seventies, which meant not much more than parliament being dominated by the government of the day. The power of government is being ceded to non-elected authorities, apparently permanently. If it could be fully realised, this post-democratic vision would mark the end of the sovereignty of parliament and a fundamental alteration in governance.

In The Telegraph, Miriam Cates reflects on her experiences from her former constituency of Peniston & Stocksbridge, calling on Conservatives to rediscover their pre-Thatcherite history.

It’s not just immigration; our economic model has failed whole swathes of the country. The UK’s reliance on debt and imports rather than manufacturing and exports has driven huge financial inequalities. We have the most imbalanced economy in the West. Nine out of the ten poorest regions in Northern Europe are situated in the UK, yet inner London is the region’s richest area. The North South divide is a chasm, and that’s why Boris Johnson’s promise to level up struck a chord. 

If the Conservatives are going to win back these “left behind” areas then slogans will not be enough. The Party must put forward a serious programme of reforms to raise productivity and prosperity in the regions. Sprucing up high streets and buying a few more buses is not sufficient. We need a revival of industry and high value manufacturing, still one of the most productive sources of employment in the North and Midlands, and one that can contribute positively to our otherwise woeful trade deficit. 

Such a programme may make Thatcherites uncomfortable. But here’s the thing – radical free market liberalism is not really a conservative idea at all. 100 years ago, it was the Conservative Party that sought to protect British industry and our national economy, while Liberals and Socialists advocated for unbridled free trade. 

And on ConservativeHome, Tom Jones says calls for more Westminster-centrism are “historically illiterate”.

The centre ground is not defined by the values of Westminster commentators or podcasters, but by the electorate. If the electorate are consistently voting for what Eternal Centrists decry as ‘populist’ policies, then they are – by definition – popular. If the policies you support are no longer popular, I’m afraid, then you are no longer in the centre, because politics does not revolve around you. It revolves around the million different events, changes, quirks and concerns of the electorate. To be ever-attentive to their voice is the basis of democracy; to quote Alexandre Ledru-Rollin: “there go the people. I must follow them, for I am their leader.”

At every general election of the last 20 years the Conservatives have specifically pledged to reduce immigration levels. At every general election of the last 20 years the Conservative vote share has increased (until now, the election at which the electorate finally understood the difference between the stated and revealed preferences of the party).

Reducing immigration to the tens of thousands is amongst the most centrist positions in Britain today; but offer it to Eternal Centrists and it is decried as ‘fantasist’ or ‘divisive’, worthy of no more than being ignored.

In the New York Times, Oren Cass lays out an alternative vision for an authentically conservative economics focused on creating productive markets and spreading prosperity to working-class communities.

Two threads run through this more populist, conservative economics, and they offer the best hope of rebuilding a capitalism that first and foremost serves the prosperity, liberty and security of the American people. The first thread is creating productive markets, which starts with an acknowledgment that many are anything but. The key to capitalism, as Adam Smith observed with his metaphor of the invisible hand, is that private actors pursuing their own self-interest can behave in ways that advance the public interest as well. But this holds true only if the activities that yield the greatest profit are also ones that yield broad benefits. Smith was quite explicit: For the invisible hand to work, the capitalist must prefer “the support of domestic to that of foreign industry” and “direct that industry in such a manner as its produce may be of the greatest value,” which would also “give revenue and employment to the greatest number of people of his own country.”

Those are substantial constraints, which modern economists managed to miss. When larger, easier profits can be achieved by offshoring production to countries that exploit workers or bringing foreign workers who will accept lower wages into the country, corporations will do just that. When the highest compensation goes to Wall Street speculators and the developers of addictive social-media algorithms, the most promising business leaders will pursue those careers. What share of Ivy League graduates bring their talents to vocations that will improve the productivity, and with it the earning potential, of anyone without a college degree, or create booming new businesses in struggling regions? It should be no surprise that the productivity growth necessary for rising wages has slowed and, in manufacturing, turned negative, that the longtime pattern in American economic development of poorer areas catching up with richer ones no longer holds.

…The second thread that runs through this new conservative economics is supporting communities. Everyone relies on the institutions around them, beginning with their families, to form them as productive citizens, to help them build decent lives and to prepare them to raise children of their own. But it is the Americans most in need of supportive communities who are often least likely to have them. The elite conception of support for families tends to be paid leave and child-care subsidies that push toward the career-optimizing and G.D.P.-maximizing arrangement of all parents in the work force. Proper family policy, as a range of Republicans have now proposed, would provide funds directly to working families to help with the cost of raising children and let them arrange their lives as they themselves prefer. Public education, likewise, would focus less on filling the high-school-to-college-to-career pipeline that benefits so few and more on improving the range of pathways that most people in fact travel.

On his Substack, Ruy Teixeira considers whether Labour’s hyper-efficient electoral strategy represents a shift away from targeting the “Brahmin Left”.

UK. The British election presents us with a different picture. Keir Starmer’s Labour gained a mighty majority, dethroning the massively unpopular Tories after 14 years of Conservative rule. Labour took 412 seats out of a possible 650, their second biggest victory since World War II, while the Tories crashed to their worst performance ever. However, Labour’s popular vote share was only 35 percent, the lowest-ever winning share and actually less than the 40 percent Jeremy Corbyn’s Labour got in 2017. The radical disjuncture between vote share (35 percent) and seat share (63 percent) is possible due to the UK’s multi-party, first past the post electoral system.

Despite Labour’s relatively low vote share, the demographics of Labour support represented a U-turn of sorts from the Brahmin Left playbook. Labour did better than the previous election among non-degree holders while actually losing some ground among degree-holders. This narrowed the education differential of the Labour vote from 42 percent degree/28 percent non-degree to 38 percent degree/33 percent non-degree. That’s quite a shift. The Tories lost a massive 27 points of their non-degree support. However, the majority of that decline was picked up Nigel Farage’s right populist Reform party, not Labour.

A similar pattern can be seen in what British pollsters call “social grade,” an occupational classification ranging from A at the higher end to E on the lower. Here again the class differentials narrowed some with Labour making its biggest gains among C2 voters (skilled manual workers). That gave Labour an identical vote share between higher level professional (AB) and C2 voters. Conservatives in contrast lost a shocking 30 points of their C2 support. But, as with non-degree voters, the majority of this lost support went to Reform not Labour.

Leaving aside the ways in which the vagaries of the British electoral system broke in Labour’s favor this election, do these results indicate a breakthrough of sorts, a move away from the Brahmin Left model? Perhaps. That has certainly been the intention of Labour’s chief campaign strategist, Morgan McSweeney.

On his Substack, Rian Whitton asks whether Jim Ratcliffe, largest shareholder in the Ineos petrochemical giant, may be Britain’s “last industrialist”.

Ratcliffe’s political instincts are adjacent to the standard Tory free market right but far from identical. He is adamant that the country’s manufacturing base needs to be prioritized, even at the expense of comparative advantage. He laments the gap in productivity between the South East and the North. While not articulated explicitly, it hints at an economic platform that is more libertarian on energy and regulation while less cavalier on immigration and the prioritization of services. It is a potentially popular position that has not recently been articulated in British policymaking.

Downcast about Britain’s future, Ratcliffe traverses between his North European industrial empire and his boats tied up in Monaco. Despite being 71, he has remained physically able, with no signs of contemplating retirement. With no known succession and his attention being eaten up by Manchester United, Ratcliffe may be Britain’s last genuinely significant Titan of industry. Aspiring British corporate giants, from the semiconductor company Arm to defense manufacturer Meggitt, are being bought by foreign investors, usually Americans. Meanwhile, established British manufacturers like Rolls-Royce, BAE, or Unilever are functional, publicly traded dead players. With industrial electricity prices at near-record highs and likely to not come down as long as our current Net Zero strategy remains, the future of British industry is not encouraging. 

Ratcliffe may have to begin institution-building if he does not want to be our last industrialist. This could involve funding research papers or turning marginal, largely powerless associations like the Energy Intensive Users Group into a significant interest group through patronage and funding. Given the institutional weakness of the Confederation of British Industry (CBI), there is space for this, but sponsoring such an initiative would be a thankless task, with any potential payoff measured in years. Today, Ineos is looking to extend its operations further in North America and detach its fortunes from a stagnant British industrial base. Reversing such a decline would take years of hard work and face considerable opposition from multiple sources, from environmentalists to Nimbys to the Financial Times and the Economist. While counter-declinists would be delighted to see Sir Jim dedicate his hard-earned cash to funding a new consensus on the importance of industry, one might wait in hope rather than expectation. 

Wonky Thinking

For the US-based National Bureau of of Economic Research, Goldberg, Juhasz, Lane, Forte and Thurke analyse the impact and effectiveness of subsidies on the global semiconductor industry.

The recent resurgence of subsidies and other forms of industrial policy is widely perceived as a significant departure from the principles of multilateralism and international cooperation. Economists are generally skeptical of industrial policy as it can lead to inefficiency by diverting resources to less efficient firms. Internationally, industrial policies may have negative crossborder effects if resources are reallocated towards less efficient domestic producers, prompting retaliation and similar policies from other countries. The resulting “subsidy race” can become a “race to the bottom,” a wasteful competition of resources that fails to achieve policy goals.

However, some subsidies, such as those for new goods, green technologies, or sectors with inherent cross-border externalities, can have positive cross-border effects and benefit other countries. Assessing these cross-border effects is challenging when comparative advantage is dynamic. Subsidies today might have minimal immediate impact on other countries but could lead to significant future effects. Conversely, some countries may not currently use subsidies, yet their past subsidies have helped them secure a dominant position in the global market. This raises broader questions: (a) Can the new subsidies be economically justified? (b) Should current WTO subsidy rules be updated to address the complexities of new and rapidly evolving industries?

This paper is part of a larger project aimed at understanding these issues within key sectors of the global economy. It focuses on semiconductors, one of the most dynamic and globally integrated industries, heavily targeted by industrial policies worldwide. The semiconductor industry is a key driver of economic growth, enabling all facets of modern digital life and accelerating scientific innovation through high-performance computing. Learning-by-doing and dynamic comparative advantage are considered to be crucial features of the industry, leading to “infant industry protection” arguments in favor of government support. Additionally, the industry has strategic importance stemming from semiconductors being “dual-use” goods, with both civilian and military applications, prompting national security-based arguments for government intervention. Our study has three primary objectives:

1. To document and quantify, where possible, the industrial policies that have been recently implemented in the global semiconductor sector.

2. To explore the rationale behind these policies.

3. To evaluate their economic impacts, particularly their cross-border effects, and assess their compatibility with multilateral principles.

…[T]he combined use of the three approaches leads to some clear takeaways:

First, government support has been critical for the semiconductor industry’s growth, particularly during its initial development phase. This support is evident across all major segments of the value chain, benefiting established leaders at the technology frontier, such as Korea and Taiwan, countries seeking to advance their industry, such as China and the U.S., and countries attempting to enter the market, such as India. In more mature markets, governments have traditionally allowed the private sector to take the lead. However, since 2020, there has been a significant increase in government intervention, with China, the United States, Japan, Korea, and India notably ramping up financial support for the industry.

Second, subsidies are the primary form of government support, manifesting as financial grants, state aid, tax incentives, loans and loan guarantees, and equity injections. This trend aligns with the findings of the OECD report. These policies primarily target production improvement and research, development and innovation.

Third, China has been a prominent user of subsidies. However, our estimates do not pinpoint China as an outlier in its subsidy use; rather, its level of support is comparable to other countries, when considering the size of its market. This conclusion is supported by both our NLP-based analysis of GTA data and the subsidy estimates from our model-based approach.

Fourth, cross-border technology transfer from more advanced to less advanced firms has been as crucial as state support for the industry’s development. This transfer has occurred through foreign direct investment (FDI), research collaborations, and technology licensing. Outside of the United States, our analysis found no instance where a domestic semiconductor industry developed without substantial foreign technology. This underscores the difficulty of developing the industry without foreign partners willing to share technology. It also explains why China has struggled to reach the technological frontier despite pursuing similar policies to other Asian economies that, as U.S. allies, had better access to foreign technology.

Fifth, policymakers aim to achieve several goals through their support of the semiconductor industry, including economic growth and development, international competitiveness, resilience, and national security. Implicit in these objectives is the belief in strong learningby-doing effects in chip manufacturing, which lead to dynamic comparative advantage, economies of scale, and high industry concentration. In the presence of learning-by-doing, subsidies have a multiplier effect, amplifying and accelerating cost reductions as experience subsidies have a multiplier effect, amplifying and accelerating cost reductions as experience accumulates. Even when firms internalize the benefits of learning spillovers, so that private production is socially optimal, governments may still have valid reasons to support their domestic semiconductor industry. This support helps counter the natural tendency toward industry concentration, diversify the supply chain, and enhance its resilience. These objectives become even more critical when considering national security concerns, given that crucial segments of the semiconductor supply chain are concentrated in a few geopolitically critical countries. Learning spill-overs across technologies and firms provides additional justification for subsidies.

Sixth, our preliminary empirical estimates suggest, somewhat surprisingly, that learning-by-doing, while present, is smaller than commonly believed in the industry. We show that this result is driven by the pricing trends evident in our data. Moreover, we find that learning internal to each manufacturing facility (foundry) and product is very small. However, learning across technologies within a firm is more significant, indicating economies of scope in learning. We also find evidence of significant international spillovers in learning.

Book of the Week

We recommend The Gulag Archipelago by Alexandr Solzhenitsyn, which first shone a light on the brutality of the forced labour camps of the Soviet Union. In a Foreword to the 2018 edition, Jordan B. Peterson writes:

“Here’s some thoughts - no, some facts. Every social system produces inequality, at present, and every social system has done so, since the beginning of time. The poor have been with us - and will be with us - always. Analysis of the content of individual Paleolithic gravesites provides evidence for the existence of substantive variance in the distribution of ability, privilege and wealth, even in our distant past. The more illustrious of our ancestors were buried with great possessions, hoards of precious metals, weaponry, jewellery and costuming. The majority, however, struggled through their lives, and were buried with nothing. Inequality is the iron rule, even among animals, with their intense competition for quality living space and reproductive opportunity - even among plants, and cities - even among the stellar lights that dot the cosmos themselves, where a minority of privileged and oppressive heavenly bodies contain the mass of thousands, millions or even billions of average, dispossessed planets. Inequality is the deepest of problems, built into the structure of reality itself, and will not be solved by the presumptuous, ideology-inspired retooling of the rare free, stable and productive democracies of the world. The only systems that have produced some modicum of wealth, along with the inevitable inequality and its attendant suffering, are those that evolved in the West, with their roots in the Judaeo-Christian tradition; precisely those systems that emphasise above all the essential dignity, divinity and ultimate responsibility of the individual. In consequence, any attempt to attribute the existence of inequality to the functioning of the productive institutions we have managed to create and protect so recently in what is still accurately regarded as the Free World will hurt those who are weakest and most vulnerable first. The radicals who conflate the activities of the West with the oppression of the downtrodden therefore do nothing to aid those whom they purport to prize and plenty to harm them. The claims they make to act under the inspiration of pure compassion must therefore come to be regarded with deepest suspicion - not least by those who dare to make such claims themselves.

The dangers of the utopian vision have been laid bare, even if the reasons those dangers exist have not yet been fully acceptably articulated. If there was any excuse to be a Marxist in 1917 (and both Dostoevsky and Nietzsche prophesied well before then that there would be hell to pay for that doctrine) there is absolutely and finally no excuse now. And we know that mostly because of Aleksandr Solzhenitsyn and The Gulag Archipelago. Thank Heaven for that great author’s outrage, courage, and unquenchable thirst for justice and truth. It was Solzhenitsyn who warned us that the catastrophes of the Soviet state were inextricably and causally linked to the deceitful blandishments of the Marxist utopian vision. It was Solzhenitsyn who carefully documented the price paid in suffering for the dreadful communist experiment, and who distilled from that suffering the wisdom we must all heed so that such a catastrophe does not visit us again. Perhaps we could take from his writing the humility that would allow us to understand that our mere good intentions are not sufficient to make us good men and women. Perhaps we could come to understand that such intentions are instead all too often the consequence of our unpardonable historical ignorance, our utter wilful blindness, and our voracious hidden appetite for vengeance, terror and destruction. Perhaps we could come to remember and to learn from the intolerable trials endured by all those who passed through the fiery chambers of the Marxist collectivist ideology. Perhaps we could derive from that remembering and learning the wisdom necessary to take personal responsibility for the suffering and malevolence that still so terribly and unforgivably characterises the world. We have been provided with the means to transform ourselves in due humility by the literary and moral genius of this great Russian author. We should all pray most devoutly to whatever deity guides us implicitly or explicitly for the desire and the will to learn from what we have been offered…”

Quick links

Prisoners on shorter sentences will be released after serving just 40% of their sentence.

The Prime Minister said the small boats crisis is likely to get worse before it gets better.

President Joe Biden called Ukrainian President Zelensky “Vladimir Putin” and Kamala Harris “Vice President Trump”.

The Government has announced the return of new mandatory house building targets and the restoration of stronger call-in powers for planning applications.

The Energy Secretary, Ed Miliband, overruled officials with an immediate ban on North Sea oil.

Real GDP is estimated to have grown by 0.7% in the first quarter of 2024.

In the General Election Labour won its lowest ever vote share in more deprived areas while Conservatives achieved their worst result with affluent areas…

…achieving fewer votes in the Red Wall than Jeremy Corbyn did in 2019, with little movement in votes cast for Labour.

The Bank of England’s chief economist sought to dampen expectations of an August interest rate cut.

Labour is immediately facing thousands of potential job losses in the coming months.

UK semiconductor design start-up Graphcore has been acquired by Japanese multi-national SoftBank.

The former chief of economist of the Bank of England, Andy Haldane, said no trade deal will result in selling enough to pay your way in the world without an industrial strategy.

Shockat Adam, the pro-Gaza independent who unseated Labour’s Jonathan Ashworth in Leicester South, is the brother of the founder of Islamist group Friends of Al Aqsa.

Labour has established a “National Wealth Fund”, but it will not be a sovereign wealth fund as normally understood, but a vehicle for green investment.

Reform UK’s libertarian economic policies may be holding it back.

US intelligence discovered earlier this year that Russian agents were planning to assassinate the CEO of a German arms firm active in Ukraine.

Former Labour MP Thangam Debbonaire, who lost her seat to the Greens, said Labour had failed to craft a “strong narrative” on Gaza.