True capitalism will set us free

Economic
Tuesday, November 15, 2016
Adam Memon

 

Reducing the tax burden on businesses and families is essential for liberty to flourish, argues Adam Memon

In recent years, capitalism seems to have lost its way. At times it has fought valiantly against the resurgent power of the Leviathan state but far too often it has been seduced by the allure of corporatism and become locked in the toxic embrace of cartelisation and bailout addiction. So capitalism is in urgent need of rescue, one of the key messages of the Margaret Thatcher Conference on Liberty held this June by the Centre for Policy Studies.

As Professor Deidre McCloskey so rightly pointed out, “it is not the accumulation of capital in itself which is the key to prosperity, but innovation.” Proponents of a free market economy must stress the fact that capitalism is not simply the mechanism which enables big business to earn huge profits. However, it is the system which best promotes liberty in all its forms, which drives higher prosperity and which develops new technologies to make us safer, healthier and more comfortable.

Yet capitalists have comprehensively failed effectively to convey this message. It is not difficult to see why. Massive bank bail-outs, whilst necessary as a short term measure to prevent economic collapse, have led to one of the biggest transfers of wealth from the poor to the rich in human history. The complexity of the tax system gives the impression that it is rigged in favour of those already with power and wealth. Too many industries have become dominated by big, bulky businesses, some of which work fine but too many of which are anti-competitive defenders of monopoly profits and privileges.

Can a family of four living on an income of £21,000 per year really be described as economically free? For their healthcare, their only choice is the NHS; private healthcare is of course far too expensive. For their children they might get lucky by finding them a good school but any option other than state education is absurd. The high cost of childcare combined with hideously high marginal tax rates means that it really doesn’t make much sense for both parents to work, or at least not the hours they would want. Commuting further to where higher paying jobs might be found becomes too expensive and the concept of actually being able to buy a house is laughable.

Such a family may have every political and social freedom but it remains in many ways devoid of choice and trapped in un-free economic circumstances. For many, liberty has become the preserve of the rich.

It was in full knowledge of this fundamental relationship between wealth and liberty that Lord Saatchi unveiled his big bold tax policy at the Conference on Liberty. His aim is nothing less than to increase the freedom of citizens and rescue popular capitalism. Lord Saatchi proposed abolishing corporation tax for all startups and small companies with fewer than 50 employees. This will release 90% of British companies from the burdens of a tax that hinders their growth and potential for innovation. The initial cost of the policy is believed to be around £10.5bn; however, CPS analysis shows how it could generate significant numbers of jobs, drive up investment and boost wages – empowering workers and their families.

General Petraeus argued powerfully in favour of unleashing the shale gas revolution in the UK and elsewhere. Liberalising natural resources, as the General proposed, would allow domestic companies to compete in a globalised economy as well as cutting the cost of everyday items. This will in turn drive productivity growth and lead to more innovation. Moreover, shale gas has the potential to spread prosperity to many other parts of the UK which have been relatively untouched by the success of our great services industries. Other speakers at the Conference called for bold deregulatory moves to create new housing construction and renewed education reforms to promote educational choice and innovation.

Being free creates both the conditions and the means to achieve prosperity and being prosperous in turn makes us freer. We must rescue our capitalist system so that it does indeed make us free.

Adam Memon is the head of economic research at the Centre for Policy Studies

This article was originally published in Crossbow, the Bow Group Magazine - Conference 2014 on 27/09/2014. Published online 15/11/2016.