Are the world’s conservatives learning the right economics lesson?

For the last month, the media, public policy experts, and especially United Kingdom Conservatives have, with unprecedented scorn, identified recently ousted prime minister Liz Truss as the principal cause of her own demise. While her response to what she had labelled the “abacus economics” of the U.K. treasury justifiably triggered the calls for her resignation, her unfunded tax cuts for the corporate sector and Britain’s wealthiest—all in an effort to generate “growth, growth, growth”—are not the cause of more than a decade of declining U.K. productivity (now the lowest in Europe), stagnating GDP per capita, widening income inequality (the second highest Gini coefficient amongst the G7 member countries), nor increased poverty among working age adults. In fact, Truss (and now perhaps Prime Minister Rishi Sunak, if his first week of policy mishaps are any indication) represents the culmination of 12 years of conservative economic and social policies. It's almost a textbook application of the neoliberalism inspired by the 20th century Austrian-American economist Friederich Von Hayek and his University of Chicago protégé, Milton Friedman. Notwithstanding the abject failures in several parts of the globe of Friedman’s “shock therapy”—a policy brew consisting of smaller government, the privatization of public services, and reduced taxes on the corporate sector and the wealthy—conservative parties throughout the democratic world continue to stick to the same ideological bromides. In many cases, they also include reduced spending on clean energy coupled with increased subsidies for fossil fuels, and, in the case of the U.K., for fracking—just what the world doesn’t need in the face of the existential threat to our societies from global warming. With aging populations as a result of declining fertility rates, and, in some countries, anti-immigrant sentiment, conservative governments are themselves often creating the conditions that lead to a narrowing of the tax base. This results in calls for cuts in spending on social services rather than increasing taxes on the wealthy and the private corporate sector, which they see as the indispensable and unique engines of economic growth. In the U.K., the result has been the accelerated erosion of social cohesion, extreme political divisiveness, and an imploding economy. Add Brexit to this toxic mix and you have the makings of long-term decline. The quick tenure of former United Kingdom prime minister Liz Truss represented the culmination of 12 years of conservative economic and social policies. Photograph courtesy of Flickr But, are other electorates and political leaders taking note of what 12 years of conservative ideology have created in the U.K.? Is Canada’s Conservative Party learning from the empirical evidence emerging from Britain, Brazil, Slovakia, and Denmark, or are Pierre Poilievre’s calls for smaller government and tax cuts for the wealthy—including the fossil-fuel industry—once again an example of idealized assumptions prevailing over facts on the ground? The empirical evidence (a term the Harper government banned from use in official documents) is crystal clear. In a landmark study published earlier this year in the journal Socio-Economic Review, professors David Hope and Julian Limberg of King’s College in London examined the impact of major reductions in taxes applied on the wealthy in 18 Organisation for Economic Co-operation and Development countries from 1965-2015. The findings are compelling and don’t require the analytical training of a macro-economist to be understood. They demonstrate clearly that cutting taxes on capital and on the richest in society has no effect on economic growth or on unemployment, both in the short and in the long term. Indeed, the study reveals that such tax cuts only widen income inequality, with the wealthiest one per cent benefitting substantially, and the rest not at all. What Britain’s Conservatives, U.S. Republicans, and Canada’s Tories under Poilievre fail to grasp is that in trying to stake out firm economic ground between Goldman Sachs and My Pillow, governments need to recognize that “human beings aren’t disembodied profit maximizers,” and that major tax cuts on the wealthy, combined with smaller government and reduced availability of public services will not trickle down to benefit the less well-off 80 per cent in our democratic economies. Indeed, it will only make them relatively poorer. It will also not generate economic growth. What any undergraduate student in economics understands is that to generate and sustain growth requires increased productivity, which itself is dependent on public investment in education, training and skills development, as well as growing support for research and development (R&D), both by government and the private sector. Given the stark challenges we face in today’s world, governments need to ensure that a rapidly increasing share of that R&D is going to the development of renewable energy and its application, as well as to new technologies for mitigating the inevitable impact that warming is going to have on technologies that we have taken largely for granted until now. This will require that governments go onto a war footing in terms of how much and where their resources will be spent. Increasingly, perceived efficiencies will need to be subordinated to speed, for the longer we wait to address these rapidly emerging challenges, the fewer the policy options governments will have. Failure to act quickly will only exacerbate poverty levels globally and accelerate migration from those countries most affected by global warming and uninhabitable environments. This will intensify social and political unrest and further erode confidence in government, thereby creating the conditions that can destroy democratic governance, with increasingly desperate people turning to Trump-like leaders to resolve their problems. History has shown us all too often the tragic consequences of such delusional thinking. Joseph K. Ingram is chairman of Greentech Labs, a Canadian Global Affairs Institute fellow, an expert adviser to the Global Growth Dialogue, former president of the North South Institute, and a former World Bank special representative to the United Nations and the World Trade Organization. The Hill Times

Are the world’s conservatives learning the right economics lesson?

What Britain’s Conservatives, U.S. Republicans, and Canada’s Tories under Pierre Poilievre fail to grasp is that governments need to recognize that ‘human beings aren’t disembodied profit maximizers.’

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Are the world’s conservatives learning the right economics lesson?

What Britain’s Conservatives, U.S. Republicans, and Canada’s Tories under Pierre Poilievre fail to grasp is that governments need to recognize that ‘human beings aren’t disembodied profit maximizers.’

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