Economic Theory

It’s markets that make society stronger – not the state


Labour Market
Economic Theory

Before the financial crash of 2008, it was common for Conservatives to say: “the 1980s was when we put the economy right; now we have to maximise ‘national wellbeing’, reduce carbon emissions and build the ‘big society’”. At that time, there was not much interest within the party in ideas coming out of independent economics think tanks such as the IEA. Then the crash came and economics slapped the party in the face.

However, time has moved on, and there has now emerged a more obvious left-right split (for want of a better term) within the Conservative Party. Such splits existed in the 1980s and the debates between the two sides were pretty vitriolic (indeed, I still have my libertarian faction Federation of Conservative Students’ songbook, and the songs about Paul Goodman are not very polite).

Those on the left (or anti-market) side of that split tend to argue that people who support a free economy believe everything can be reduced to money and transactions and that there is no need for character, virtue, non-market exchange, morality and so on.

This was the danger of Paul Goodman’s statement in a recent ConHome piece: “In boiled-down terms, the [Tory] Right puts its faith in better markets: there are few problems, in its view, that freer markets can’t solve.  The [Tory] Left, rather, puts its faith in renewed people – believing that those from broken and failing homes, or who have alcohol and substance abuse problems, or whose family are long-term unemployed, or go to the worst schools are less likely to enjoy rewarding work and happy lives than others. It thus places less stress on markets than the moral framework that makes them possible, and is more disposed to take a positive view of government intervention and of the state itself.”

In what follows, I will keep the terms ‘left’ and ‘right’ for want of something better.

Supporters of markets put faith in people

Those who believe in free markets and a free society are, by our very convictions, putting faith in a renewed people. Markets are about free human co-operation in the economic sphere: intrinsically, they are about people. The fundamental division relates to our belief about the role of the state in economic and social life. It is not that we do not believe in morality and it would, in fact, be ridiculous to suggest that we do not believe “that those from broken and failing homes, or who have alcohol and substance abuse problems, or whose family are long-term unemployed, or go to the worst schools are less likely to enjoy rewarding work and happy lives than others.”

The point is that we happen to think that the state is responsible for a lot of those problems (long-term unemployment in France being a particularly good example) and these important problems are best solved in the context of a free economy, a free society and moral renewal. Believers in free markets and a free society more generally put faith in a free people and a free civil society above a faith in government, and they do not believe that government is a substitute for morality.

The Institute of Economic Affairs, as its name suggests, is the organisation on the free-market side of the argument that probably emphasises economics and markets the most. We don’t apologise for that – to not pursue our charitable purpose would (quite rightly) get us into trouble. But a cursory glance at our output is instructive. Since around the beginning of the twenty-first century we have published Novak’s Spirit of Democratic Capitalism, Economy and Virtue, Corruption: the World’s Big C, Catholic Social Teaching and the Market Economy, Reclaiming Social Capital from Social Democracy, The War Between the State and the Family…and the list goes on. We also created and spun off Civitas. Indeed, my next task today is to write an address on ‘Economics and Ethics’ to give to the Joint Services and Command Staff College in Shrivenham next month. To argue that a belief in renewing people and an understanding of the problems of social breakdown is the preserve of the left is simply wrong.

Do markets produce virtues?

The next question is whether markets can help nurture the desirable characteristics we all want within the population as well as delivering prosperity. They can, at least to an extent. Markets discipline people to turn up on time, to provide decent products rather than rubbish, to be polite, to put in a decent day’s work, to look after themselves and their families rather than expect others to do so. There are fewer strike days lost in the private sector and education normally better meets the needs of the parent when it is provided in a market-based setting (even if funded by the state) – the evidence is very clear on both these points.

However, markets do sometimes provide opportunities for opportunistic, materialistic and greedy behaviour. More to the point, they do not solve all problems. Paul Goodman makes a mistake of logic, but one which is often repeated and blown up into an attack on those of us who believe in markets. Just because we believe that markets are nearly always and everywhere better than government at providing goods and services does not mean that markets solve all problems. Wheatabix is always and everywhere better as food than sawdust, but Wheatabix does not provide for all our needs.

Does the state produce virtues?

Markets, and society more generally, produce much more satisfactory outcomes if people behave well; if they are trustworthy; if families are stable; if people do not succumb to problems of addiction; and so on. The real division relates not to our views about the importance of ‘renewed people’ but to our views about the role of the state in renewing the people.

People who support markets often see the state as the problem here. It is, after all, the state that financially discriminates against family formation and, in many countries, it has been the main engine of creation of long-term unemployment. We also worry more than those who like a bigger state about how the problems of poor behaviour (corruption, dishonesty and so on) have far greater effects when government has more power. We emphasise the problems of rent-seeking (introduced as a concept to the country by the IEA in the 1970s and much touted by The Good Right as if it was a new discovery of theirs); planning regulation; the ‘welfare state for bankers’ encouraging reckless and imprudent behaviour; and so on.

To put it simply, supporters of a free economy put their faith in a renewed people because a free economy and society involves trusting the people. What distinguishes us from the left is our views on the extent to which government helps or hinders the renewal of the people.

Prof Philip Booth is the IEA’s Academic and Research Director, and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. This article was first published on Conservative Home.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

4 thoughts on “It’s markets that make society stronger – not the state”

  1. Posted 04/02/2016 at 13:31 | Permalink

    Its Weetabix, Philip. And there was me thinking you lived on little else!

  2. Posted 04/02/2016 at 13:46 | Permalink

    actually, it was just a rhetorical flourish, my house is built with it too!

  3. Posted 04/02/2016 at 13:48 | Permalink

    We need a campaign to stop people weetabixing over the English countryside.

  4. Posted 04/02/2016 at 13:54 | Permalink

    @Philip – then you had better pray that it never rains milk because your house would collapse into a soggy mush.

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