Glyn Chambers: A response to Niall Ferguson's "trilemma" - the Conservative narrative on the economic crisis can embrace a "quinfecta" of competition, monetarism, privatisation, capitalism and law and order

Glyn Chambers works for CRA International, an economics consultancy, and is Conservative Parliamentary Candidate for Vauxhall

At a lecture to the Centre of Policy Studies on 24 March, Professor Niall Ferguson argued that conservatives on both sides of the Atlantic face a “trilemma” in which they can only attain two of three desirable goals: social stability, the small state or globalisation. The Left, he stated, has had a more compelling narrative for the present financial crisis in that it has been able to advocate the big state as an antidote to the negative aspects of globalisation which threaten to endanger social stability.

I will look at Fergusson’s analysis and then argue that the policies leading us out of this crisis are likely to be profoundly and naturally conservative. But let’s first look at some ways in which the crisis has actually made people more conservative in their outlook:

• Macroeconomics is back as the electorate’s big concern. Put simply, the centre-right are still more trusted to grow the cake whilst the centre-left have been more trusted to cut it ‘fairly’, though we have made great strides in that area in recent years. Anyway, growing the cake is again the priority.
• People are increasingly aware that the UK will be worst-hit advanced economy. Forecasts by the IMF and others are leading people to realise that, even after 12 years of Labour, the land of no boom and bust does not quite do what it says on the tin.
• The Left have recently made a strategic error by increasingly placing all of their eggs in the one basket labelled “massive fiscal stimulus”. On both sides of the Atlantic, it is starting to become clear that there are profound economic and political risks in such a strategy.

Now looking at Ferguson’s analysis, we should be careful to distinguish whether his three goals are means or ends. I suspect that the average Conservative would consider social stability to be an end in itself, the small state to be both a means to an end (i.e. economic prosperity) and an end in itself (i.e. economic and political freedom), but globalisation only to be means to an end (i.e. economic prosperity). If that truly was the choice, I suspect that most would go for the small state and social stability and bid globalisation Au Revoir. However, as Ferguson might point out, globalisation is probably the one of the three that we have to have, as you can no longer shut yourself off from the global economy.

I have some concerns about the breadth of the three goals. Most notably, ‘social stability’ can cover a multitude of issues, as indeed can ‘the small state’. Ferguson defines the former as the absence of the negative consequences of globalisation, which may be summarised as capital movements, labour movements and changes in the price of labour (i.e. globalisation pushing down wages for some workers in the developed world). I am not sure that I accept Ferguson’s point about a 50 year cycle of financial crises, as Taleb’s ‘black swans’ have an undefined probability and the repercussions of them are more that institutions shouldn’t invest so much betting on the ‘very unlikely’ not occurring. Moreover, the government also did not expect this particular ‘black swan’, as it failed to caulk its hull, as noted by Dan Hannan.

So, how we can triangulate Ferguson’s triangle and remain true to our principles? I believe that this particular Gordian knot can be untied with a series of measures that have strong conservative bases in the Tory traditions of promoting market virtues and discouraging social vices.

Firstly, consider this – there is no evidence that government spending is the means to prevent wage-undercutting by developing countries, outsourcing of labour, immigration and volatile capital flows. Prescribing a big government to handle these problems is really akin to buying a drug that will treat your symptoms but provide no cure and, indeed, be very expensive with it. Consequently, the Left’s purported answer to the problem rings hollow.

So, there are only two other levers you can pull here – control or adaption. Ferguson highlights an excellent example of adaption with his ‘flexicurity’ idea – getting our workforce to be more flexible to whatever twists and turns the global economy throws at us and I applaud that. However, we should also be willing to advocate control where appropriate. The Left have no reason to believe they can call this ground their own. Which party, for example, is in favour of greater control of movements of labour into this country? We do now need better control, through regulation, of capital flows – though note that I say better rather than more.

Now, turning to this particular crisis:

• One way that the aforementioned control can be exercised is by recognising the role that monetary expansion played in this particular story of boom and bust. The credit boom was fuelled by rapid growth in the supply of money. For a number of possible reasons, the Bank of England failed to raise interest rates, to put the breaks on bank lending, before it was too late.
• Rather than accumulate and merge bank assets into ever-larger state-owned institutions (as Labour continue to do), we should be looking to sell off those parts of these banks that are viable entities – good for the government’s balance sheet as well as a stimulus to the banking sector. Whilst this must be handled carefully to ensure best value for the taxpayer, a lot of banking privatisations are going to be required quite soon. 
• The sensible conservative virtue of competition could be tied to ensuring that we have a larger number of smaller banks in future – driving value for consumers and limiting the repercussions of any failures. 
• Similarly, David Cameron has already invoked the Conservatives’ history as the party of law and order to suggest that we are best-placed to reform financial regulation. 
• We can also make the case that true capitalism means taking responsibility for your actions – both private and public sectors have seen an erosion of the necessary links between performance, outcomes and rewards in recent years.

In summary then, a Tory narrative that deploys competition, monetarism, privatisation, capitalism and law & order – a quinfecta, not just a trifecta!