TThe old adage says that if you are not leftist at 20, you have no heart, if you are not conservative 30 years later, you have no head. But from handling refugees to managing the economy, no one at any age can have a head and be conservative in 2022. For our time, conservatism is simply wrong.
As the country faces sharp stagflation in the coming years, it will seek a very different economic leadership from the warmed-up Thatcherism that is becoming clear to be Chancellor Rishi Sunak’s core philosophy. The economic outlook in 2023 and 2024 was dire enough, aside from the aftermath of Putin’s bloody war. Now they are desperate.
Russia is the world’s largest exporter of gas, oil and wheat, and the second largest exporter of sunflower oil. Ukraine ranks fifth in the world in wheat exports and second in the world in corn exports. The prices of all these major commodities are skyrocketing for obvious reasons, with the price of oil making headlines. Leading forecasters predict the price will top $200 (£153) a barrel this summer, a third off the all-time high of $147 a barrel.
Past surges in oil and gas prices of this magnitude have invariably caused global recessions and rising inflation. The added momentum of the amazing food price spike makes both sure.
Before Putin’s war, the Bank of England expected consumer price inflation to peak this April at 7%; now the general expectation is that inflation will peak at 9.5% in October and then only gradually decrease. Over the next five years, it will average at least 5%.
These will be the highest levels of inflation since the 1970s, the decade that saw the rise of monetarism and the associated view of labor unions and big government as the source of economic evil. In a weak lecture at Mais last month, the chancellor tried to argue that big government remains an economic enemy and that tax cuts promise a resurgence of an entrepreneurial culture. This was a controversial proposal in the 1970s. Today it borders on real insanity.
Instead, we need a clear view of what we are facing. Inflation and renewed recessionary momentum will be added to an economy that, according to the calculations of the International Monetary Fund (IMF) and the Bank of England, is already moving towards near-zero growth. Now, a recession with high inflation is likely, followed by stagflation for much of the 2020s. Everything that could boost growth is shrinking: consumer spending due to the cost of living, real government spending due to inflation, investment due to the bleak economic outlook and the relatively high cost of capital. You have to go back 50 years for every dial on the economic dashboard to flash red.
There was little glamour in the dreamy, inflationary 1970s. It was a decade of defense, defeat and retreat. It was not coffee that flourished on the central streets, but thrift stores. Some creativity and solidarity did awaken among the masses, though—the 1970s saw the birth of a vibrant housing association movement, some good groups flourished, and people turned to unions for protection from the worst.
But basically the point was to close. There were few jobs for young people. There were few business start-ups. Successive attempts to stem the wage price spiral through wage caps, freezes, and social contracts have only partially worked at best. It was the decade of the death of Social Democracy, the victim of a ticking movement between the Bennites on the left, who called for a utopian “true” socialism, and the Thatchers on the right, who insisted that utopia lay in the free market.
There will be a proper eclipse of both in the 2020s. The illogicalities and basic errors of Thatcherism were offset by a 40-year boom in credit and property, aided by EU membership, which compensated for the lack of appropriate economic institutions and a sound economic strategy. Interest rates are cutting incomes, and Brexit has wiped out the credit boom, real estate and the services sector. Instead, there is the prospect of stagnation and even falling property values—a socially imperative but economic depressant. Similarly, socialism in the style of Benn and Corbyn obviously does not work and is not sold to the electorate.
The only way forward is a revived social democracy. Sunak may not have noticed, but the British Jurassic Park economy, as international investors call it, is not avoided because of high taxes, which are higher in Germany, Holland, the Nordic countries, Austria and Belgium, where GDP per capita is higher. and they understand the importance of economic openness. We do not have a viable growth model and suffer from the poverty of supporting economic institutions. First of all, we are being persecuted by politicians who think Brexit is an opportunity and Thatcherism worked.
Thus, the right response to high energy prices and Russia’s foreign policy influence is to accelerate fossil fuel independence, led not by a big government, but by necessary government. It’s not doubling down on fossil fuels, issuing new drilling licenses in the North Sea, and relaxing fracking regulations. Energy policy requires strategies that work for generations, not a reaction to today’s spot prices. Solar and wind energy have become even more attractive from an economic point of view, as has electricity generated by power plants in space and fed back to Earth using microwaves. The British Space Energy Initiative is planning a 36,000 km high power plant, but why not? Push UK taxes into the middle of the IMF rankings and by 2035 we could be zero dependent on fossil fuels.
Same thing elsewhere. There is a £2.5tn opportunity to stimulate the economy over 20 years with the right boost. Advanced training without a diploma entails another high price. Equally, a range of institutions should be behind the enterprise—public development banks, growth accelerators, an expanded and well-resourced Catapult network. And the entire economy requires unfettered access to the EU single market.
All this is possible. As I said earlier, issue 50-, 75-, 100-year bonds to pay for the program, as we did during the war, which will now require sustainable defense spending. Mitigate the cost-of-living crisis with generous energy bill discounts and targeted income support. Sunakian’s chatter about instilling an entrepreneurial culture while accumulating government spending to fund pre-election tax cuts is both wrong and a national betrayal. What is needed is a social democratic way of thinking and acting today.