Does this government understand private enterprise?

This is Iain Martin’s newsletter for Reaction subscribers. To receive it regularly,  and get full access to our site and reader offers, subscribe here.

One evening in London near the start of the Coronavirus crisis I received a phone call from a butcher in the Lake District. He wanted to know whether our order had arrived safely. There had been problems finding us and he wanted to check it was there. It was Friday evening, he said, and he knew we were depending on him for a nice meal that weekend. The delivery had arrived, I confirmed, neatly packaged in an ice box .

The government had at that point not yet sorted out the list of homes entitled to priority deliveries from supermarkets, for those told not to venture beyond the front door. Perhaps 700,000 Britons, plus their families, were omitted from the NHS lists initially. It was all but impossible, at that stage, to get a delivery from any of the major supermarkets unless you had a pre-existing regular delivery arrangement. The decent food in the freezer we had stockpiled sensibly – not panic bought – in February on the basis (correct as it turned out) that the government would not be on top of the detail in the emerging crisis was running low.

On Instagram, the economist Sam Bowman spotted that specialist Lake District Farmers would deliver to London. They had plenty of stock but their usual clients – the nation’s leading restaurants forced to close – had no need of it.

This is how the new economy – or one small part of it – works. From glossy social media network, to online order and a personal phone call from one of the best butchers in the country checking that the ingredients for our dinner had arrived, all in a couple of days.

That Adam Smith statement – something about butchers, brewers and bakers – in Wealth of Nations came to mind as I opened the ice box and gazed in wonder at the contents.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

It is a great quote and always useful for illustrating how commerce works and why the market system – made up of millions of individuals making decisions that are in their own self-interest but simultaneously also in the interests of others – is vastly superior to any centrally-planned or socialist system. But for all his brilliance, Smith wasn’t a barrel of laughs. That supposedly killer quote has a pitiless, harsh edge to it. Of course it is in the butcher’s self-interest to sell us what we need because it keeps him in business. There is another layer of human behaviour though – subjective, impossible to measure with any accuracy but you know it when you see it – that does rest on benevolence. The best butcher or baker wants us to have a good experience, not only in the hope that we will return and buy again. They want to treat us well because manners and concern for others are a social good in themselves – involving looking out for people – and that is how they would wish to be treated by others. Smith addresses questions of moral sentiment elsewhere.

Anyway, the steaks, sausages and bacon were delicious.

Many affluent Britons will have a similar lockdown delivery story, of local independent stores, or big chains and entrepreneurs adapting to make sure their customers got what they needed and could afford.

Lockdown was very obviously much, much tougher for the poorest and less affluent. Millions spent it crammed into small flats without access to outside space. The pressure on poorer families was intense.

Through a combination of exceptional taxpayer help in the furlough scheme and the benefits system (note that the much mocked Universal Credit computer set-up did not fall over) there was epic support.

Understandably, much of the concentration at the peak of the crisis was on the work of the state and key public sector workers. The private sector also stepped up, though. The supermarket workers were key workers too. They retooled, brilliantly, and the food supply chain did not collapse.

Some of what happened (my delivery from the Lake District) can be dismissed as the stuff of middle class indulgence. The wine trade has adapted and boomed, for example – as though that is a terrible thing. We need all the economic activity we can get right now.

Without private sector growth there won’t be the tax revenue to pay for the extra spending that is now expected by most voters on health and social services after the ongoing Covid-19 disaster.

This week, we’ll get the first proper indication of the extent to which the Chancellor Rishi Sunak understands that a massive burst of enterprise and private sector ingenuity is required to get Britain out of this hole. Sunak is delivering a mini, sort of, budget but don’t call it a budget.

On one level it sounds odd to question whether the upper echelons of the Conservative party understand private enterprise. They are supposed to. It is an inescapable question, though, in light of recent pronouncements. The Tories won their 80 seat majority by smashing the Labour red wall and appealing to voters whose inclinations on economics range left. Or more accurately those voters are a curious blend of what once would have been termed left and right. They are for people locally getting on and thriving, but they also want a large and activist state spending a lot.

What the Prime Minister makes of all this goodness only knows. Anyone familiar with his newspaper columns will know that he has never been much interested in economics beyond the most generalised rhetoric based on boosterism. Those who trade currencies seem to have noticed this, judging by what is happening to the Pound. Plus, business – understanding people in it and what motivates them – is not Johnson’s thing at all. Neither is it the thing of chief aide Dominic Cummings either.

Incidentally, Cummings is asking his special adviser team to read assorted business management books for a David Brent-style away day – soon. In the training episode in The Office, Brent goes home to get his guitar.

On management books, has anyone else had that experience of realising on having a “how to” book forced on them by an insistent colleague that the supposedly revelatory insights on behaviour are actually pretty obvious and would only be remotely revelatory to those who struggle to understand basic human interactions?

Michael Gove, the intellectual heart of the Johnson administration, doesn’t need management books, but economics is not his beat either. He spoke in his fascinating Ditchley speech last weekend of the benevolent power of the empowered and expanding big state. Gove’s family background is small business but throughout his career his main interests have been social mobility and, in a crisis, muscular foreign policy and the notion of the West.

The problem is that eventually the Covid-19 rescue programme is going to come to a painful end. It must. Britain cannot go on running a deficit on the scale envisioned.

The only way to plug the gap is going to be growth – lots of it, a veritable festival of growth that will be much more likely if (please) there is a vaccine or effective treatment or the virus fades. That recovery will only come from millions of us making millions of individual decisions, starting businesses and adapting and expanding existing small and medium-sized enterprises, so that the arc of recovery bends towards innovation and growth.

To help, government can always design a better tax system, and slim regulation, but it must ultimately get out of the way. What makes the most difference is the firm that employs twenty people having the confidence to employ another five next year, while improving plant and machinery in manufacturing or upgrading technology if they are in services. This wonderful process needs to be replicated many hundreds of thousands of times across all sectors.

In comparison, the government micro-managing or designing decade-long infrastructure plans, as FDR found in the 1930s, isn’t going to produce growth, or not soon.

There is another ominous looming development that should spur the Chancellor to think urgently of stimulating enterprise rather than opting for an ever bigger state.

One of the central difficulties ahead this autumn is likely to be white collar mass unemployment once the furlough scheme ends. Anyone who has worked closely with finance directors – in any large business a key person – will know how they tend to think. They are always on the lookout for ways to slim costs and the crisis has demonstrated how firms can, between home working and a reduced workforce, get the same or more output, and thus better productivity, for less money.

If – when – this employment tsunami hits there will be white collar carnage, leaving a surfeit of experienced ex-employees scanning LinkedIn only to discover that most other large firms, like the one they just left, have shrunk their payroll and will not be hiring. What are they going to do?

Hopefully, they will feel emboldened and encouraged to start a business or take their experience to a smaller firm battling to expand by harnessing what Adam Smith termed “animal spirits”. This week we’ll discover whether the government has the slightest clue about what is involved.