The EconomistJune 9th 2018 Britain 49T
HE cabinet has become a killing field of political careers. Four
senior ministers have left for the backbenches in the past eight
months—and if there is any justice then two more, Chris Grayling,
the transport secretary, and Gavin Williamson, the defence secre-
tary, will soon be followingthem. But one minister is thriving
against the odds. Since becoming secretary of state for the envi-
ronment last June, Michael Gove has revived his reputation and
revitalised his department. Some bookmakers put him as the fa-
vourite to replace Theresa May as Tory leader.
The skills that have brought him to this unexpected position
were on display in a speech he delivered on June 6th at Policy Ex-
change, a right-of-centre think-tank, about the state of capitalism.
He started off by praising the system as the most successful
wealth-creating machine the world has seen, but went on to la-
ment “the failure of our current model of capitalism to deliver the
progress we all aspire to”. Productivity growth is sluggish. Wage
growth has stagnated. Economic insecurity is rife. A well-con-
nected oligarchy is sucking up a disproportionate share of the
proceeds of growth. If Jeremy Corbyn, the Labour leader, had
spoken in similar terms, the tabloids would be up in arms.
Mr Gove’s speech is a good example of his ability to identify a
change of mood in his party and articulate it for the broader pub-
lic. For most of the four decadesfollowing Margaret Thatcher’s
election in 1979, Conservatives thought it was enough to praise
capitalism and demonise the state. Today, with much of the priva-
tised rail system in chaos and some franchises being taken back
under public control, sentient Tories are telling a more complicat-
ed story. They are making a sharp distinction between good and
bad capitalism, and suggesting a much more active role for the
state in promoting the first and tackling the second.
Several ministers have echoed Mr Gove’s thoughts, though
none has expressed them quite so vigorously. Mrs May has re-
vived Edward Heath’s talk of “the unacceptable face of capital-
ism”, a phrase which Thatcherites once dismissed as heresy. Phil-
ip Hammond, the chancellor of the exchequer, says he wants to
curb capitalism’s excesses. Matt Hancock, the culture secretary,
promises to tame the “Wild West” of the internet.
Some of the brightest ToryMPs outside the cabinet are also
asking hard questions about capitalism. Jesse Norman is about topublish a book arguing that Adam Smith was a much more com-
plicated thinker than many libertarians, including the Adam
Smith Institute, believe. Smith worried that markets were prone
to being hijacked by rent-seekers and that companies could be-
come tools of oppression. Right-wing think-tanks are producing
blueprints for reforming capitalism, just as they once drew up
blueprints for unleashing it.
The Tories are making sure that they praise the good version
of capitalism. Liz Truss, the chief secretary to the Treasury, often
applauds digital disrupters such as Airbnb and Deliveroo. She fre-
quently pitches her argument to young people, who might be at-
tracted to Mr Corbyn for cultural reasons but who are also keen
on starting their own companies or, at the very least, picking the
fruits of the entrepreneurial economy in the form of home-deliv-
ered meals and Uber rides. The Conservatives are determined
not to repeat the mistake of last year’s election, when they lacked
a positive economic message to sell.
At the same time, they are targeting bad capitalism. Its most
egregious form is cronyism. Many of Britain’s privatised indus-
tries are much too close to government. This can lead to dismal
service, as on the railways. It also encourages a cycle of connec-
tion-greased over-investment, followed by collapse, as in the case
of Carillion, a giant outsourcer.
Cronyism often goes along with rent-seeking. The govern-
ment worries that some sectors of the economy, particularly
property and utilities, are rife with it. Ministers have threatened
to punish developers who “bank” land, rather than building.
Greg Clark, the business secretary, has published a green paper
on the way that energy companies use their market power to
short-change households, particularly the poorest, by making it
hard to switch providers and, in effect, charging loyal customers
higher prices. Mr Gove broadened the debate by suggesting that
large swathes of industry might be affected by rent-seeking. Man-
agers have devoted too much energy to boosting their salaries
and not enough to encouraging productive investment, he said.
Another variety of bad capitalism is market dominance. The
Social Market Foundation, a centrist think-tank, argues that eight
out of ten consumer markets that it examined were dominated by
a small number of incumbents. Mr Hammond is pondering
whether new regulations are needed to curb the excesses of the
internet giants. Backbench ToryMPs routinely complain about
the fact that bricks-and-mortarshops are going out of business,
turning high streets into mausoleums, while internet-based com-
panies escape from paying taxes.From each according to his ability
These new Tory critics of capitalism are less successful at provid-
ing solutions than they are at diagnosing the problems. In his
speech, Mr Gove put forward a series of clever suggestions—such
as creating different classes of shares, so that company founders
can retain more control when companies go public—without
fleshing out how they might work in practice. They are also guilty
ofunderestimating the forces they are up against. The rewards for
lobbying and cronyism are huge. Interest groups have an aston-
ishing ability to grind down reformers—look at the way that Mr
Clark’s reforms of corporate governance have been reduced to al-
most nothing. But these are reasons to redouble their efforts to re-
form the system, rather than retreat in despair. Mr Gove is surely
right that if capitalism’s friends don’t reform the system, then cap-
italism’s enemies will do it for them. 7Good capitalism v bad capitalism
The Conservative Party is engaged in a surprising debate on the virtues of marketsBagehot