Conservative Fantasies of ‘the Market’

Matthew Watson - Professor of Political Economy and ESRC Professorial Fellow, University of Warwick

As ever, though, the devil was in the detail as Hammond began to explain his anti-No Deal position.  His assessment of what had led the Conservative Party to the position of pushing the economic self-destruct button was particularly eye-catching.  The culprit wasn’t Brexit itself, which had long since become too much of a Conservative article of faith for any self-identifying Tory pragmatist to position themselves against it now.  It also definitely wasn’t the austerity policies that created important momentum for the Leave campaign in the 2016 referendum.  Again, this would have been far too much of a challenge to the decisions to which Hammond had himself acquiesced.  What he alighted on instead was the potentially intriguing proposition that ‘the market’ was “not delivering in the way that the textbooks tell us it will work”.

This in itself might be seen as quite some confession from a Chancellor of the Exchequer in the post-Thatcher Conservative Party.  We are more used to seeing the holder of that office use the reification of ‘the market’ as a Panglossian stick with which to beat the sceptics of other political parties, rather than being party to lowering the reverence in which such institutions are held.  But what exactly did he mean by how ‘the textbooks tell us’ market institutions should work, in particular his claim that they should always be able “to distribute wealth in a way that is fair”?

Presumably he did not have in mind the economics textbooks, or if he did maybe one of his Treasury officials had played a trick on him by slipping him a 1960s’ copy of Paul Samuelson’s Economics.  This was the last time that Samuelson’s ground-breaking textbook presented ‘the market’ through a macroeconomic perspective which extolled the virtues of government intervention in the name of distributional fairness.  Later versions reflect the modern predilection for thinking instead of ‘the market’ in microeconomic terms, as a guarantor of efficient allocations.  Fairness no longer enters the discussion.  Market institutions are to be judged not against a consequentialist logic which asks who got what and whether it was right for them to have done so, but against a procedural logic which asks whether the resulting allocation obeyed strict economic reasoning.

Presumably Hammond also did not have in mind those economics textbooks which have presented strict economic reasoning through the lens of a Robinson Crusoe economy.  Such models revolve around a desert island setting which abstracts an isolated economic agent from social settings where claims to fair treatment might have demonstrable meaning.  Even when Crusoe is provided with someone to trade with, this is almost always Friday, with all that that entails for the invocation of the injustices of the eighteenth-century imperial economy.  Fairness gets no look-in here, as economic outcomes are imposed by the powerful through strategies of subjugation.

Hammond’s off-the-cuff comment about intrinsic market failure therefore threatens to evaporate in front of your eyes the more closely you look for its meaning.  But it remains important insofar as it was a surprise to hear him utter it at all.  Yet what it allowed him not to say was more important still.  The allusion to textbook market outcomes which had somehow become impossible to enforce was a cover for a wilful refusal to acknowledge what was staring him in the face.  It came in the context of his dismissal of a report produced by Philip Alston, the UN’s special rapporteur on extreme poverty.  Alston had said that Conservative governments since 2010 had engaged in systematic public service cuts for purely “ideological” reasons, which in turn had had “tragic consequences” for spiralling poverty in the UK.  Hammond replied that he did not recognise the country from Alston’s description and that the UK did not have a poverty problem.  His comment about the failure to replicate textbook market outcomes thus seems to be pure diversion.  No textbook account of ‘the market’ would ever have addressed the destruction of welfare entitlements that Hammond always appeared happy to wave through.  Nor the attempt to impose work of any nature as an antidote to welfare claims.  Nor the restructuring of the labour market to drive down unit labour costs.  Nor the use of the gig economy to mask other failures of the social contract.

Hammond will by no means be the last Conservative politician to talk wistfully about the inbuilt properties of ‘the market’.  Neither will he be the last to try to cover the tracks of his own decision-making through such an appeal.  He and his successors need to be continually called out when they do so.