Global Affairs

Can Theresa May's idea of 'the good government can do' tame the market?

Once dismissed as parochial and inconvenient by elites, concerns about immigration and job security now have the ear of political leaders all over the world - British PM Theresa May being the latest.


LONDON • "Brexit means Brexit" is what Mrs Theresa May vowed to her people when she became Britain's prime minister in July. That was her way of promising that, having voted in a referendum to exit the European Union, British voters were going to get precisely that - nothing more and nothing less than a departure from the EU.

But as Mrs May addressed the annual conference of her ruling Conservative Party last week, it suddenly became clear that Brexit actually means more than just Brexit: It heralds the start of a broader "revolution", one in which, as she put it, millions of Brits "stood up and said they were not prepared to be ignored any more".

As she made clear to her party stalwarts, the British leader plans to ride on the wave of this revolution by shifting her party from the centre-right to the centre-left of politics, from a blind belief in the forces of the market economy, free trade and globalisation towards a world in which markets are again regulated, borders are increasingly sealed to migrants and governments are again concerned with wealth distribution.

If carried through, this will be an intellectual shift of monumental proportions, and it is one that appears to be echoed in many other Western countries, including the United States. The days of untrammelled capitalism unleashed by then US President Ronald Reagan and then British Prime Minister Margaret Thatcher during the 1980s now appear to be over.

Undoubtedly, the British referendum that resulted in the country's decision to depart from the EU was a seminal, historic event. It was a result nobody expected, certainly not the government ministers who hoped that the referendum would settle the question of Britain staying in the EU for at least a generation, and not the broader British political class who tended to dismiss those who argued that Britain could exist outside the EU as lunatics, no different from flat-earth believers.

The fact that the decision went the other way created a fundamental split in the British nation. In some parts of London, such as the leafy northern suburb of Islington or the super-expensive areas of Kensington and Chelsea, over two-thirds of the electorate voted for Britain to stay in the EU. But most of England's countryside voted "no", and in some industrial parts of north England, rejection of the EU surpassed 70 per cent.


An even more significant factor was the turnout in the EU referendum. In big cities, the turnout was respectable but unremarkable. But in northern areas of England where hostility to the EU is intense, the turnout was as high as 75 per cent to 80 per cent of the electorate; people were angry and determined to show their anger.

Fervent believers in European unity are still in denial about what has happened. They tend to dismiss the British referendum as just a fluke, an example of British eccentricity, the sort of foolish things people who live on islands off continents tend to engage in. But, as Mrs May has pointed out, the reasons for the rejection of the EU by the British people are more profound and systemic.


For Brexit is a product of a sense of resentment against political elites who not merely fail to understand what ordinary people want, but also actually have a disdain for the electorate's beliefs. As Mrs May put it in what must rank as one of the most searing criticisms of her country's elites, they regard love of the nation and patriotism as "distasteful", they dismiss fears about immigration as merely "parochial", and they dismiss voters' concerns about job security as just an "inconvenient" problem which in no way should interfere with free trade and globalisation.

And there is no question that Mrs May has captured the feelings of a majority of her nation. For, if one sits in London or some of the country's other big cities, life has never felt better, restaurants have never been more tempting, and there has never been a better time to hire cheap foreign maids and cleaners, or buy an array of foreign-produced goods, all pouring into the country duty-free.

But to millions of Britons who have only basic education and no skills, globalisation spells permanent marginalisation and poverty. Few British companies now bother to train British workers - why should they, when they can import trained workers from the rest of Europe? Some companies do not even attempt to hire workers in Britain at all. They simply use labour intermediaries who ship in busloads of EU workers, no questions asked. A decade ago, an unskilled British worker had to compete in a British labour market of 60 million people. Today, he is asked to compete in an EU labour market of over 500 million.

Seen from this perspective, the only surprise is that the backlash against globalisation has taken so long to manifest itself. But there is no question what this backlash is all about: It is against immigration and open borders, as well as unfettered free trade which, instead of being seen as a wealth creator, is now regarded as a job destroyer.

Mrs May wants to take the lead in answering this backlash by reminding voters of "the good government can do" in saving capitalism from itself - "where markets are dysfunctional, we should be prepared to intervene", she says.  She has proposed to force companies to reveal the salaries that they pay their top bosses in order to shame them into dealing with workers' inequality, impose border controls to reduce immigration to the bare minimum, and force companies to exercise corporate responsibility in their society by hiring and training workers, all in order to shift the market balance "decisively in favour of ordinary working-class people".

And there is no doubt that, although Britain's proposed measures to stop immigration are unusual by European standards, Mrs May's proposed policies are now being discussed in many European capitals.

French leaders gearing up for their country's presidential election next April talk about this all the time. So do German politicians preparing for their general election in October next year. And so do Mr Donald Trump and Mrs Hillary Clinton in the US. All are suddenly downplaying the virtues of markets and globalisation, while extolling the benefits of government regulation.

But it is not at all clear that they are right to do so. To start with, the evidence that government officials are necessarily better than markets at allocating resources and alleviating economic problems is patchy, to say the least; the worst decades in British economic history during the 20th century were precisely those when the economy was regulated by the state.

Nor is it clear that forcing companies to shoulder more of their corporate social responsibilities achieves the necessary results. Germany, which has applied this model for decades, recently modified it precisely because it resulted in higher production costs without higher benefits to the community.

And reducing immigration without improving education and social inclusion will not achieve much either, especially in an age when companies may either choose to invest in automation instead of hiring domestic labourers, or simply opt to relocate production lines to other countries.

Furthermore, as Mrs May is now doing, trying to take the sting out of populist anti-immigration movements by threatening draconian immigration controls will not work either. French politicians have adopted this technique for years, but have always been trumped by extremists such as France's National Front, who simply advance even more irresponsible demands.

And there is also the risk that, in their rush to appear responsive, politicians like Mrs May read too much into the perceived current backlash against globalisation.

Extensive polling recently released by the Chicago Council on Global Affairs, a US think-tank, indicates that two in three Americans still believe that globalisation is "mostly good" for the US and a majority still support the Trans-Pacific Partnership, the trade agreement which both Mr Trump and Mrs Clinton now reject.

In short, voters may not be as disenchanted with the current system as their occasional outbursts indicate. So politicians who react by threatening trade and immigration barriers may be exaggerating by proposing to use a hammer to crack an egg.

Still, there is no doubt that the intellectual mood in many Western countries is now changing, moving away from a belief in the "self-correcting" virtues of markets and more towards government regulation.

Nor is there any doubt who will end up paying the price if this experiment goes wrong, as it has many times in the past: The same "ordinary working-class people" on whose behalf Mrs May now wishes to act.

A version of this article appeared in the print edition of The Straits Times on October 10, 2016, with the headline 'Can Theresa May's idea of 'the good government can do' tame the market?'. Print Edition | Subscribe