Anti-business or anti-market?


Economic Theory
The war of words between Boots and the Labour Party has led to much political soul-searching. The salient question seems to be: ‘is Labour anti-business?’

This is not particularly interesting. ‘Business’, after all, is not some homogenous entity. Many claim to be the ‘voice of business’, but the loudest tend to be those representing the big entrenched players, rather than the challenger incumbents. Different companies will have different positions on particular issues, shaped by their own self-interest.

In general, ‘pro-business’ policies are not even necessarily desirable. A policy which helps a particular business or industry (subsidies, restrictions on competition) may be bad for the overall economy. As both Adam Smith and Milton Friedman recognised, capitalists are often the worst representatives of free enterprise – businessmen have incentives to lobby for new regulations, government contracts and special carve-outs from legislation. What we really want then are not pro-business policies as such, but pro-market ones – in which governments provide a framework that enables free competition to operate for the benefit of consumers.

The mystery for the Labour Party is that, in many areas, is does have pro-business policies, but doesn’t appear to be getting any support for them. Its opposition to an In/Out referendum all but guarantees our remaining in the EU if the party is victorious, and yet very few of the substantial number of businesses who agree with the Labour position are coming out to back Ed Miliband.

Likewise, it’s also committed to a more hands-on ‘industrial strategy’ than that of the current government, and has outlined more in the way of childcare support, green interventions and a new infrastructure commission. It has also promised to cancel a corporation tax cut to pay for a business rate cut for smaller firms. Whatever you think of them, these are all policies that you’d imagine would win backing from at least some businesses and business lobby groups.

Why, then, the lack of public support? While pro-business and pro-market policies are not one and the same, they often overlap. In particular, businessmen generally understand the importance of certainty, the role of prices, the rule of law and how extensive political interference in markets can be damaging. So it is difficult not to conclude that Labour has simply frightened the broad business community through a range of its more anti-market measures. In short, it’s the scale of what Labour envisages to be within the scope of government that has petrified many.

Listen to what business leaders are saying. Their concerns are often unrelated to issues within their own sector. Lord Haskins, the chairman of Northern Foods, is irked by Labour’s policy of freezing energy prices. Others lament its commitment to a mansion tax as a key plank of improving Britain’s dysfunctional property market. Then there’s the promise of rent controls, and public shaming of companies often in complex tax cases. The cumulative effect has been to shift perceptions such that an overwhelming number of businesses now worry that Labour does not believe in or understand the way markets operate.

In other words, much of the business community doubts Labour’s commitment to the broader market framework that has been implemented in the past 30 years. The party’s problem is more fundamental than simply failing to attract business support due to a few business specific policies. It’s that it is now perceived to be anti-market.

This article was originally published by City AM.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.

1 thought on “Anti-business or anti-market?”

  1. Posted 10/02/2015 at 18:20 | Permalink

    How is the Mansion Tax anti-market again?

    How is “the market” ever going to get the selling price of all land down to it’s cost price?

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