Having coffee with a Conservative moderniser last week, I was astonished to hear him say that he believed there was a strong social democratic consensus in the UK that the Tory party needed to recognise and adapt to. While we on the left may accept this, it is hardly commonplace from a Conservative MP – the vision of the Thatcher years, when the British population appeared to espouse US-style individualism, still holds too strong a sway. However, my companion saw the 1980s and early 1990s as a ‘blip’ and believes that the Conservatives will not regain power until they accept the progressive consensus.
In his view, the language of rolling back the state only plays well to a handful of policy wonks and business leaders – nothing like the groundswell of support the Conservatives need if they are to regain power.
This is radical stuff. But does my conversation in the tearoom herald the kind of fundamental shift in Tory thinking that preceded Labour’s return to power? Certainly the role of government is going to be one of the key battlegrounds in the fight for the future of the Conservative party. There is a chasm opening up between those like John Redwood and David Davis who still believe in small government and low taxation, and those who recognise that the Conservatives cannot win while they go into elections without supporting strong public services.
The former is the ‘one more push’ school of Conservative thinking. Its proponents suggest that the electorate will realise eventually that increased spending on the public services is not going to bring about the sort of improvements in quality and accessibility that it wants. When this happens, people will turn back to the Conservatives, accepting that public services can never deliver and that the best they can offer is a safety net to the very poorest. The rest of us will acknowledge that if we really want to take care of ourselves and our families, we will need to do it through health insurance and private schooling.
But compare this with the following statement from a recent article by Nick Gibb MP: ‘The Conservatives, in particular, need to abandon their obsession with the invisible hand of the free market and actually develop policies for running these public services within the state sector.’ Does that mean that if the right man (and it is going to be a man) wins, the Tory party will run on a progressive ticket at the next election? Certainly there are signs of real developments in Conservative thinking.
The new intake of Tory modernisers are interpreting small government in a new way and arguing for decentralisation of public services: the new localism. In the modernisers’ manifesto for ‘new Conservatism’, Direct Democracy: An Agenda for a New Model Party, they argue that control over public services should be placed firmly in the hands of the user, in the form of vouchers and other methods of direct payment. The public should then be able to supplement these through the use of their own money (if they can afford it).
Nick Gibb, on the other hand, argues that we should accept central control of spending. He suggests that real accountability means politicians taking responsibility for the state of the public services and that this can only be meaningful if those politicians have some control over the way in which those services are provided. He suggests that internal markets are unpopular because they fail to deliver this kind of accountability.
Rather than focus on the structure of services as both Labour and Conservative governments have done, the Conservatives should pay more attention to the way in which services are delivered. In other words, we should care more about the kind of teaching and healthcare on offer, and less about the shape of the institutions that deliver it.
The problem with both the old and new forms of the debate about big or small government is that they are still asking the wrong questions.
The Conservatives are in a position analogous to the one Labour occupied in the Kinnock era. Many Labour activists and politicians at that time thought that the secret to winning was to appear to be nicer to business and to stop talking in public about collective provision. However, their instincts were still to renationalise, something that was not lost on the British public. It is only with a leadership that has understood the need to embrace the operation of markets but also to manage them, that Labour has had a real chance of governing effectively.
The Conservatives have a similar lesson to learn. For them, the lesson is that the operation of markets is dependent on the functioning of the state – that the two institutions are deeply intertwined and interdependent. Rather than see the state and the services it provides as at best a safety net and at worse a hindrance to the effective operation of the invisible hand of the market, they need to understand and embrace two important functions government has in managing markets.
First, government must manage negative externalities – the unpriced effects of economic activity. This includes things like environmental pollution or damage to the appearance of the countryside. We can respond to these negative externalities by trying to ensure that their cost is incorporated into market pricing or by regulating these negative impacts directly. Most Conservatives still regard either option as unwarranted interference in the operation of a free market.
Second, the operation of a market economy is based on public acceptance: people only accept living in a market economy if the rules are fair and they reject governments and parties with policies they regard as unfair. Interpretations of what conditions need to be in place for the public to regard the basic situation as ‘fair’ are open, but John Rawls’ thought experiment and Amartya Sen’s argument that the state should provide the opportunity for people to fulfil their capabilities are important contributions to the debate. All analyses share in common a belief in the accountability of government, both generally and in the delivery of public services in particular; support for a concentration of state resources on those most in need; and the provision of public goods through public mechanisms.
This is what Conservatives do not ‘get’. They do not understand why the general public supports public services, or accepts significant national or local taxation. Until they can subject their policy solutions to a ‘fairness test’ they are likely to be poorly received by the electorate.
Asking whether we should have big or small government is entirely the wrong question. It suggests that this is a choice that governments themselves can make, and neglects the fact that the operation of markets and of government are entirely interdependent. It is not a trap that Labour should ever fall into. One of our achievements is to have shifted the terms of the debate so that this basic interrelationship is accepted. We should not, like Bill Clinton, ever say that ‘the era of big government is over’. The real questions we should be asking are about what the appropriate role for government is, given the state and markets have a symbiotic relationship.
For the Tories to get close to winning power again, they need to change the terms of their own debate. And so I throw down this challenge to Tory modernisers. Forget about liberating the market from government through localism or vouchers. Instead, answer the questions – how do you propose to manage negative externalities like pollution? Where’s your plan for addressing global warming? How do you ensure that markets are healthy? How do you ensure good corporate governance and effective regulation? And what do you need to do to ensure that markets are seen as fair? Can you embrace the ‘R’ word: redistribution? Until the Conservative party has a sensible answer to these questions, it will not have a story to tell that the country will want to hear.