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Boris Johnson can battle business but he can’t ignore economics

So it turns out that when Boris Johnson said “fuck business”, he really meant it. The defining characteristic of this week’s Conservative conference has been a unified assault on companies who are failing to adapt to a new economic model. The fact that this model is being made up as we go along is no mitigation. Then, as now, the prime minister’s animus is directed not at commerce itself but at those multiple — and often major — businesses resisting his vision of a new post-Brexit economy.

In the first days of the petrol crisis the sudden concern for the pay and conditions of hauliers, a worry never previously articulated, appeared a calculated political response to a problem.

Yet there have been moments at the conference in Manchester when the scale of the vitriol towards big business left you wondering if you had been transported to a gathering of the Greens. Here were the Tories, now the party of rises in corporation tax and national insurance, lambasting rapacious, uncaring companies “mainlining” low-cost foreign labour. “We are now the party of responsible socialism,” joked one attendee.

One Conservative MP talked of breaking the logistics chains so that “the farmer down the street can sell his milk in the village shop like he did decades ago” before the “commercial predators”, otherwise known as supermarkets, wiped that out. A pamphlet published by 10 more MPs wants to “remodel our economic institutions to put the values of ordinary people, rather than the abstract forces of finance, at the centre of decision making”.

But what has become painfully clear to business organisations is that, while the political tactics are undoubtedly opportune, the government means what it says. Indeed Johnson’s Brexit-based indifference to their arguments partly explains the scale of the current crisis. The shrill warnings from business groups such as the Road Haulage Association or the Food and Drink Federation were dismissed by ministers as just another alarmist Remainer effort to maintain access to cheap foreign labour.

There is a coherent moral and political basis for the government’s argument. Businesses do need to wean themselves off dependence on low-wage foreign labour: it denies citizens a decent living and disincentivises investment in technology to drive productivity. Conservatives also chafe at the idea that taxpayers should be subsidising, through the welfare system, those businesses which do not pay their staff a living wage. For all the hurt expressed by business lobbying groups, the prime minister has in fact been fairly consistent on this issue.

But two factors intrude on this calculation. The first, obviously, is the pandemic, which has altered the employment landscape, adding significantly to the Brexit dislocation. The more fundamental problem is that Johnson’s strategy is more political than economic. And even a wily politician cannot outrun the economics indefinitely.

While there is much to be said for the critique of businesses “mainlining” cheap labour, the combined effect of the pandemic and Brexit has been to turn an anti-addiction programme into a brutal cold turkey. In some areas the market will eventually resolve a temporary crisis.

Truck drivers will be paid more till supply meets demand. But low-margin businesses which cannot absorb or pass on the extra costs, nor invest in technology, have a third option: to do less. A government which has talked up resilience may find itself importing more food.

The government’s underlying case that the switch from cheap labour will spur productivity by driving investment in automation holds water in some sectors, but there is an inevitable and indeterminate lag. And until the promised productivity gains materialise there are only the wider inflationary pressures eroding people’s incomes. Yet while his chancellor worries about inflation, Johnson is phlegmatic.

A wiser course would have been to manage the withdrawal of labour over a period of time, say 18 months. For all the talk of businesses having had plenty of time to adjust to the end of free movement, none could foresee the extra complexity of the pandemic. Instead the government has willed the end without securing the economic foundations and in defiance of exceptional circumstances. It is akin to throwing a baby in a pool and hoping it will swim.

While the ambition to wean the UK off cheap, low-skilled labour was genuine, the argument has now been retrofitted to the immediate supply crisis in the hope of shifting blame from the government to the corporate sector. The politics has been shrewd but it will carry less weight if the shortages are protracted and the wage gains are wiped out by increases in the cost of living.

Perhaps most concerning for Tories should be the signs that Johnson, in his glib dismissal of challenges, is beginning to evince a Thatcherite belief in his invulnerability. Doggedness is admirable, but a refusal to heed warnings because they are coming from the wrong people carries costs.

His closing speech was an ebullient and effective tour de force. But the optimistic vision is outpacing reality. Panic buying is a warning that the public does not trust the government’s ability to manage the seismic changes it seeks to visit on the economy. The fear lurking even among Tory strategists is that voters may conclude he is all destination and no map.

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This article was first published at https://www.ft.com/content/3746531f-3425-4d7c-bb87-45f61ce4d3c6

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The Markets Today