The Communist Deregulationists

With Brexit now in the rearview mirror, the Government is trying to figure out what to do with their newfound freedom. But since their plans are emerging against the backdrop of the lockdown, they tend to tip toward the absurd.

We currently live in an upside-down world where the Treasury focuses on economic minutiae while ignoring the massive collapse that they have engineered with the lockdown strategy they have borrowed from communist China.

The Government is looking at ways to deregulate the economy, something they think will boost productivity and competitiveness. But what they are finding is that much of the economy is already lightly regulated.

Take finance, for example. Anyone with a smartphone can download an app in minutes and trade everything from stock market ETFs to foreign currencies. This is not a tightly regulated market. When they turn to the labour market, the Government focuses on the 48-hour workweek and rules around taking work breaks. This is hardly the sort of root-and-branch reform envisaged by the Thatcher government when faced with chronic inflation and strikes in the early-1980s.

Yet, at the same time, we live under partial house arrest, risking a £200 fine for carrying the wrong beverage in a park and the high street has completely collapsed. The lockdown regulations we face daily are arguably worse than anything experienced in the USSR – and will likely have a similar effect on living standards if they are not removed soon. Forecasts suggest that British GDP will fall by over 10% in 2020, the worst year on record – ever.

To think this through it is worth briefly explaining how economists think of regulations. Economists think through how the economy functions by using economic models. In their models they typically assume that people are free to buy and sell things at will. When they introduce regulations into the model, these are typically thought of as roadblocks, impeding people from freely buying and selling various things.

Often these roadblocks are relatively minor. Consider, for example, a regulation saying that every restaurant must have a disabled toilet. This means that restaurant owners cannot sell customers food – and customers cannot buy this food – unless the restaurant owner forks out for a disabled toilet. The cost of this is then presumably passed on to the consumer but it would likely be so small that no one would notice – it would also be a one-off cost.

Sometimes the roadblocks are bigger. If workers band together to form a union that engages in strike action, they can shut down commerce altogether. In the case of the restaurant, if all the chefs joined a union and went on strike, no one would be able to buy anything. The chefs could then demand a 20% pay rise and you can be sure that consumers would see their food prices rise – what is more, this would be a permanent price increase.

Now consider the absurdity of the Government’s current deregulation agenda. They are looking at rules around work breaks, while literally closing restaurants and pubs. They think they are actually going to rejuvenate the British economy by closely examining builders’ smoke breaks – while at the same time massively restricting physical movement and banning many services entirely.

The distance between rhetoric and action is so large as to be bizarre. If you took the Johnson government at their word you would assume that Britain was on its way toward some sort of libertarian experiment in free market economics. Yet if you look at what the Government is doing it is far closer to what the Chavez and then Maduro government did to Venezuela.

I do not write this for rhetorical effect. Personally, I think many economists exaggerate the positive impact of deregulation. True, it is sometimes needed, but often it is simply done to check an ideological box; I do not believe that regulations on disabled toilets impact the economy one iota. I do not think, however, that economists exaggerate the negative effects of communistic interventions in the economy. Imposing extreme, top-down controls on how people live, on how they work, on how they buy and sell is a sure path to total impoverishment.

There is simply no analogy outside of communist control economies for what the Johnson government is doing to this country. Even when the Churchill government took over the British economy during World War 2, the controls were nowhere near as onerous. Rations were imposed, so that the troops got more, say, petrol than the average British subject, true, but ultimately people could move basically as they pleased and non-rationed goods could be bought and sold freely. The system was also rational: the Government needed to move certain goods from the domestic consumer market to the front and the ration system did that well.

By contrast, the current communistic-style regulations are – as they usually are in communist countries – utterly absurd. They change seemingly with Johnson’s mood. No one knows what they will be tomorrow, much less next week. Business owners and consumers cannot even try to plan around them because they flail around wildly. Better regulations to utterly demolish British living standards could not be dreamed up by the country’s worst enemies.

And so, the Government fiddle while Rome burns. The British people are seeing their living standards fall faster than at any time in history. A police state, complete with arbitrary fines and checkpoints, is developing. Small businesses are being obliterated. We are living under a state tilting toward communist-level dysfunction. Yet, at the same time, the Johnson government wags a Union Jack and lays out their ‘deregulationist’ post-Brexit agenda. It would be funny if it were not so tragic.

The author is an academic economist.