Economic Theory

Archbishop Welby and the hubris of central planning

Earlier this week, the Archbishop of Canterbury, Justin Welby, fronted the final report of the IPPR’s Commission on Economic Justice.

It makes an interesting read, but is otherwise a completely over-the-top attack on current economic policy, with a wishlist of mainly unworkable policies attached.

It begins with an examination of everything that the Commission – made up of the soft-left Great and Good – holds to be wrong with the UK economy. We get a succession of dubious empirical generalisations.

For example, it includes the familiar refrain that “for most people, the last decade has seen little or no improvement in living standards”, a proposition based on median earnings in a much-changed economy, not what has happened to real individuals and their families. Then there’s the assertion that most people in poverty now live in working households, which ignores the fact that the majority are only working part-time.

We get a riff on allegedly growing inequality, which isn’t actually happening by the conventional measure, and then the discredited proposition that high levels of inequality are correlated with virtually every societal ill.

The focus then shifts to what’s wrong with British business. We get the hoary argument, old when the Franks Report came out in the 1960s, about our “persistently poor management capability”. Also the “slow uptake of digital technology” (really?). The decline in manufacturing’s share of output and employment. The reduction in the diversity of our exports. The “short-termism” of investors.

It’s familiar stuff, that does little to take into account the reality of the vibrant and ever-changing UK economy.

The report offers the same old tired solutions, too.

These include a 20 per cent increase in the National Living Wage, a target of 50 per cent union membership by 2030 “to strengthen the bargaining power of workers”, greater emphasis on manufacturing, a “new social partnership to manage innovation”, expansionary fiscal policy and permissive debt rules, an employment mandate for the Bank of England, compulsory reporting of ethnic pay gaps, redefined responsibilities for company boards… and so on.

There are over 70 specific proposals, although each is sketched in only the vaguest terms and with no real attempt to evaluate costs, trade-offs, or possible negative knock-on effects.

The report argues for higher levels of income and corporate taxation (the latter to include a sort of “imputed profit tax” to catch AmazonFacebook, and the like), and replacing inheritance tax with heavy lifetime gifts taxation.

No attention is paid to the likelihood that tax hikes would produce much less revenue than they assume, as behaviour shifts to avoid the new taxes.

Much of the hoped-for extra revenue would be redistributed. All 25-year-olds would (in the distant future) receive £10,000. A sovereign wealth fund would allow everybody a small basic income.

The whole shebang is justified by the need to “re-evaluate what our economy is for”, so that we can “build the economy we want”. And therein lies a fundamental misunderstanding of what the economy is.

Some of Welby’s co-religionists may believe in Intelligent Design. I don’t. The universe evolved without anybody planning it, and so did our economy.

The hubristic belief that we can fundamentally reshape it, as this report proposes, flies in the face of what we know about how people and businesses interact to produce mutual benefit.

When the report proposes vaguely that “we need a much sharper focus on scaling up businesses… and making sure these are distributed across the country”, you just wonder what exactly this could mean in practice, if anything at all.

There is much wrong with the UK economy, but the nebulous platitudes and straw-man arguments of this report add little to our understanding.

A version of this article first appeared in City AM. 

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

3 thoughts on “Archbishop Welby and the hubris of central planning”

  1. Posted 07/09/2018 at 09:38 | Permalink

    if i may say so, those of us who believe in various forms of divine intervention in the creation of life do not believe that Archbishops take on such powers and knowledge to guide the economy. They do not have the knowledge of the creator. Also interesting is that this report received so much publicity precisely and only because its leader did not know what he was talking about but made a name for himself in a different field.

  2. Posted 07/09/2018 at 11:02 | Permalink

    There is much wrong with the UK economy – not least, the increasing problem of concentration brought on by ill-considered policies of previous governments, including that of Tony Blair, who wants to take this country back to politics of the past.

    The dominance of just a handful of manufacturers, the Select Few, has been a distinctive feature of the defence equipment market for as long as anyone can remember.

    Unlike the market in consumer goods and services, there is only one customer for defence equipment – the government. Consequently, the purchasing decisions taken by the government has a significant bearing upon the composition and diversity of players in the defence equipment market. And because taxpayers money is used by the government to procure military equipment for the Armed Forces, the condition of the defence equipment market should be of concern to those who have an interest in the proper functioning of open and free markets, and in particular securing best value for money, as it relates to the expenditure of public funds.

    Nowhere is the market in defence goods more concentrated than in the naval shipbuilding sector, as exemplified by the number of bidders who have entered the competition to build the Type 31e general purpose frigates for the Royal Navy. It is the first time that a contract for fighting ships has been competed openly on a global basis, to identify the bidder that will construct the five Type 31e frigates. Hitherto, the contractor to receive such a single-source design and build contract has always been selected on a preferential basis (from the Select Few) – by successive generations of people in the pay of the State who have a poor understanding of how free markets work, not least, because they have not spent a single day of their lives in the private sector.

    The consequence of this misguided attempt at shaping the shipbuilding industry has now come to haunt this government. Only two industry teams have responded to the initial announcement to submit an expression of interest for consideration by the procuring authority, the Ministry of Defence – this, after the government went out of its way to relax the demanding technical specification requirements incorporating stringent naval standards, specifically to attract commercial shipyards.

    For an island nation with a long tradition in naval shipbuilding going back centuries, such an outcome is a huge disappointment and it leads one to conclude that there is a serious lack of competitiveness in the naval shipbuilding sector. It is the number of bidders entering a competition that determines how competitive a product market is – the higher the count, the healthier and more vibrant the market, and the keener the desire on the part of contestants to win the contract.

    This dire situation has come about because successive governments, going back decades, have sought to protect domestic equipment manufacturers from being exposed to the full rigours of the free market, that is to say, shield them from ‘feeling the heat’ of competitive market forces – which has, in itself, led to this market concentration.

    The creation of the monolithic entity called BAE Systems which dominates the defence equipment market today – from the acquisition of various business units of Marconi Electronic Systems in 1999 with the tacit acquiescence of the Blair government, without referring the merger to the then Competition Commission – further reduced the number of independent participants in the market.

    BAE Systems then went on to use this dominant market position to pressurise the Brown government into signing a 15-year Terms of Business Agreement which, in effect, hands out a series of cost-plus, naval shipbuilding contracts worth £3,450 million up to 2024.

    What’s more, in common with concentration elsewhere in the UK economy, the defence equipment market monopolised by the usual suspects is plagued by excessive mark-ups, insignificant investment in innovation, R&D and product development and persistently low wages for the vast majority of its workers.

  3. Posted 11/09/2018 at 13:52 | Permalink

    I have seen many comments from or supported by the Archbishop on the performance of various government responsibilities.
    I long for a report on his own performance. How much has his congregation grown, and what is he doing to grow it further?
    How many pagans have been converted and had their souls saved? After all it is no longer necessary to send missionaries to foreign parts, the pagans have come here.

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