Osborne must help the nation overcome its fears of the global race

May 21, 2014

Britain’s status as an open free-market economy is at risk for the first time in a generation. This is what George Osborne will say at a dinner for the great and the good of the business world this evening. I imagine his speech will go down pretty well with the assembled guests.

Osborne is right. We are at an important juncture. The world is becoming an ever smaller place. Cheaper air travel, the internet, a globalised workforce.  Combine these changes with a rise in the number of well educated, richer and increasingly mobile people from places such as China, India and Brazil and you can understand why David Cameron refers to Britain having to compete in the ‘global race’.

The problem for the Prime Minister is that many people up and down the country fear that they don’t have the necessary skills to compete in that race. This provokes a feeling of uncertainty which both Ed Miliband and Nigel Farage have seized upon.

Miliband argues that free market capitalism is broken and that more government intervention is necessary to control what he sees as market abuse. His forays into the energy market (a price freeze on energy company profits), the housing market (rent controls) and the banking sector (a cap on retail banks’ share of the high street) play on peoples’ fears that Britain’s open economy doesn’t work in their interests but for the richest in society.

Farage plays on peoples’ fear of globalisation and that Britain must take back control of its borders. His argument that people are losing control of their country and their communities doesn’t just resonate with older, white men but increasingly with large sections of  the white working class who feel completely let down by the mainstream political parties.

However, politicians should be weary of crude and populist interventions when they haven’t defined the problem precisely. Many experts do not believe there is a problem in the energy market and that the kind of radical intervention being proposed by the Labour leader could lead to unintended consequences which actually reduce competition and drive up prices for the consumer. Likewise there is not enough evidence to suggest that immigration is the principal reason why wages are suppressed (we have a National Minimum Wage although it does need to be more strictly enforced)  or why there aren’t enough houses to keep up with demand (net migration accounts for only 75,000 homes out of a widely accepted minimum of 250,000 a year).

But peoples’ fears are real and understandable. If you look back over the past 50 years you can see why. In 1964 almost half the British workforce did blue collar jobs, 40% were in unions and 70% had no formal educational qualifications. Now manual jobs represent less than 30% of the total, fewer than 20% of people are in unions, and voters with educational qualifications equal those without. Old, white, impoverished males – once the people who decided elections – have been left behind. They want reassurance. Hence Gordon Brown’s memorable phrase, ‘British jobs for British workers’. Hence Miliband’s attacks on ‘predatory’ business. Hence Farage’s call to “take back control of our borders”.

This real fear presents a huge challenge to Conservatives. So far Osborne and Cameron have responded sensibly. Promoting competition, choice and transparency in public services will empower the consumer and drive up standards. Increasing the flexibility of Britain’s labour market to allow employers to take on more staff will drive up productivity and wages. Setting out a long term roadmap for Britain’s tax system will help increase business confidence to invest in this country.

However, more needs to be done, especially for those people in our de-industrialised cities, our coastal towns, our rural villages to assuage their fears. Ultimately the answer comes down to making the argument in favour of an open market economy as Osborne will do tonight. He must link new jobs, better schools, investment in creaking infrastructure, rising wages to the benefits of Britain being an outward looking and welcoming nation that welcomes individuals and businesses who want to help us grow economically and culturally.

He must also reiterate that where there is clear evidence of market abuse then a Conservative government would be willing to step in and protect the citizen. As the great Republican President, Teddy Roosevelt argued – capitalism is a good thing, it creates wealth, spreads opportunity and benefits all citizens, but capitalism cannot achieve its true potential if it is dominated by monopolies, who can distort markets and limit choice.

There is no doubt that Britain is at a crossroads. The world is changing quickly. Instead of preying on peoples’ fears politicians need to show that an open free-market economy closely monitored by government is in the best interests of the many not the few.

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