I have been in business for almost 40 years. The last 15 months have been the most challenging period of all, thanks to the pandemic and lockdowns – especially for those of us in hospitality. But the Government stepped in. Furlough, state-backed loans, rates holidays, grants and deferral of taxes probably saved 2 million from unemployment and thousands of firms from going bust.
And now at long last, after all the darkness, the country is emerging into what could be the sunlit uplands.
Yet I fear the nightmare of grappling with Covid has given Boris Johnson and his Cabinet a taste for significant intervention in the private sector which could have grim long-term consequences for the national finances, the business community and our way of life.
Economies tend to do best when markets are free. If animal spirits are permitted to rise, entrepreneurs will start and grow enterprises to satisfy the needs of consumers. Investors will risk their capital to back innovative new firms. Competition means only the best survive. Rule of law is required to protect property rights and prevent monopolies. A virtuous cycle appears: the public are offered more choice and better prices; superior businesses expand, create jobs and generate taxes to pay for public services. A pragmatic government resists the ineluctable temptation of the bureaucrats to over-regulate and over-tax, which inhibits investment and success.
Unfortunately, this Government has interfered more in our everyday lives since March 2020 than any in history. It tried to tackle Covid by taking the advice of scientific experts. But I fear the politicians and the scientists have suffered from a dangerous cocktail of groupthink, confirmation bias, the illusion of control and a bias for action. Many of their strategies – from closing schools to decanting untested elderly patients from hospitals into care homes – have proved flawed.
Despite the mistakes, the position of the Prime Minister is unassailable, notwithstanding last week’s by-election defeat. He has a majority in the Commons of 80 seats, and rides high in the polls despite the misery of the pandemic. So inevitably he feels emboldened by the apparent popularity of his interventionist policies during Covid.
I fear this means the hundreds of pieces of legislation passed in the last period may be just the start. Boris likes to think big, and he and the Government talk relentlessly about how the nation must adopt grand schemes like Zero Carbon by 2050. These types of uncosted, speculative plans are very scary. As with Covid, the science of global warming is not settled. Unfortunately, there is barely a science degree among the entire Cabinet, so they lack the domain knowledge to understand the complexities of climate change. But they appear to be adopting wholesale an extreme green agenda – perhaps in part because they like the idea of a Vision Thing. The march to Zero Carbon could leave us all poorer, colder and driving and flying much less.
The trouble with the state picking “winners” is that they usually get it wrong. The civil servants and advisors have no skin in the game, and special interests influence their decisions. Governments take too long to place bets, they are too inflexible, and they have too many different agendas – from levelling up to diversity and equality. These might be worthy goals, but business is a cutthroat game – when political objectives crowd out commercial ones, the end result is usually misallocation of taxpayer resources.
By contrast, individual founders understand specific opportunities and seize them – they don’t set out to change the world, but that is often what their inventions do. They are adaptable and they can manage failure better than government – because incentives matter. Societies rarely progress through centrally directed giant leaps – rather it is via thousands of incremental initiatives from ambitious capitalists building for-profit concerns.
Ultra-low interest rates are encouraging the Government to borrow and spend on an unprecedented scale – £375 billion on the pandemic alone. No doubt they will throw huge sums at any manner of boondoggle which sounds good. These distortions crowd out viable ideas and lead to corruption – and ultimately more public debt and higher taxes.
The economy is bouncing back strongly and the Government needs to exit stage right rather than double down with “Moonshots”. Leave it to the wealth creators to solve the problems – the very best government industrial strategy is to get out of their way.