Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 28 January 2020

How business lost its influence on right wing parties

This covers ground which others may be more knowledgeable about, so please let me know of any references or sources that I really should read that cover issues central to the discussion below.

When Trump threatens governments that want to tax tech giants, most of which are based in the US, it seems like the familiar story of governments acting in the interest of business. But when Trump imposes tariffs on imports he may be favouring particular firms, but he is also acting against the interests of US trading firms in general.

Brexit is a much more potent example. Brexit is clearly not in the interests of firms that trade. Because Brexit makes the economy as a whole poorer there are not many firms who support it. Boris Johnson, when asked about concerns from business about a hard Brexit, is reported as saying “f*** business”, and following some comments by the new Chancellor, Chris Grey speculates whether “f*** business” is now government policy.

It wasn’t always like this. David Edgerton writes that
“After the second world war, such captains of industry avoided the Commons, but the Conservative party was without question the party of capital and property, one which stood against the party of organised labour.”

That changed after Thatcher, as she reduced the power of trade unions, and Labour began distancing itself from them. Another development that I think began with Thatcher, and is particularly evident in the UK, is a lack of concern about who owns large firms. The importance of this should not be overstated: the ONS estimated that in 2012 just 1% of non-financial firms were foreign-owned, but these firms were large so around a third of value-added was accounted for by foreign owner firms. I suspect the proportion is higher still in the traded sector. But that still leaves plenty of important UK owned firms.

Another important point, and a difference from the US, is that joining the EU meant the UK was no longer in charge of trade negotiations. This ended the extensive and direct contacts between the UK traded goods sector and government that you find in countries not part of the EU. However links between the financial sector and the UK government are strong and effective. In contrast as the financial sector expanded, its links with domestic businesses became less important.

Finally another important development that followed from the Thatcher period was the reduction in taxation of top incomes. This particularly benefited high earners in the financial sector, but it also spread to most CEOs of large companies. According to Piketty, Saez and Stantcheva, this encouraged in the UK and US an explosion in executive pay, distancing the 0.01% or 0.001% of extremely rich individuals from everyone else. This involves the managers of business extracting rent from the business itself. Although this explosion happened in the 1980/90s, the cash increase in remuneration (including bonuses etc) for the median FTSE 100 CEO between 2009 and 2017 increased by 76% to £3.9 million. There are no signs of it ending. 

This meant that CEOs spoke in the interests of both the companies they ran, but also in the interests of very rich individuals like themselves. Before the 2015 UK general election, one of the main concerns of business about a possible Labour government was a potential tax on expensive homes! This helps dilute the pressure business can exert on right wing governments, if those governments make it clear that they will always stand up for the very rich. In 2017 Labour’s campaign slogan was ‘for the many not the few’, so of course the few will always support the Tory party, even when it was making life much more difficult for business. Tax cuts for the wealthy are now a key part of any Republican programme.

In these senses neoliberalism (aka what happened during and after Thatcher and Reagan) created the conditions that helped diminish the direct influence of business on the dominant right wing party in the UK and US, and therefore for much of the time the UK and US state. This was my thinking when I wrote
Rent extractors naturally seek political defences to preserve their wealth, and the mechanisms that sets in place may not embody any sense of morality, leading to the grotesque spectacle of Republican lawmakers depriving huge numbers of health insurance to be able to cut taxes for those at the top.”

It also means that the finance any party of the right needs can come from money and those that manage business (and extract rent from it), and that can be divorced from the interests of business. This was part of my thinking in talking of a governing plutocracy, and writing:
It is also a mistake to see this plutocracy as designed to support capital. This should again be obvious from Brexit and Trump. It is in capital’s interest to have borders open to goods and people rather than creating barriers and erecting walls.”

Could a more vocal attack on Brexit by businesses have influenced the vote? It is not clear, because everything is mediated through a largely partisan press and an 'opinions differ' broadcast media. However I think the distinction between the interests of the wealthy and domestic business is important, and goes well beyond an opposition between financial and non-financial firms.


  1. So insightful. As you say though, there is no way of getting this insight 'out there' because of the way media is organised.

  2. I went to one of Edgerton's seminars in Japan (where he is highly respected among industrial historians which has a strong tradition there). His seminars are highly recommended if one gets the chance to attend - as well as his books. It was over 15 years ago but it I remember him saying that problems in the UK industrial sector were really becoming evident as early as the 1950s. We have been through decades when questioning globalisation was considered a sign of economic illiteracy, to one now where MIT economists and the IMF have gone reactionary and are blaming everything on it. The truth is, however, that the story is much more complicated, messy and full of contradictions. In the end you have to tackle the mess head and build up the picture from primary (quantitative and unquantifiable) primary evidence has Edgerton has done - long before it was fashionable to do so.

  3. I should be interested in your view on "Executive Compensation: Where We Are, and How We Got There" by Murphy, Kevin J. He argues that Government interventions have been counter-productive in addressing excessive rent-taking.

  4. Is your hypothesis based on a situation that is more apparent than real?

    In the US you have, arguably, institutional capture by business rather than it being sidelined and the Twitter outbursts of Trump rather belie his own origins so perhaps should not be taken too seriously.

    In the UK can it really be that business is sidelined by a party whose core belief is private property and free enterprise, albeit in fact largely rent extraction?

    You have said, quite correctly, that much of UK industry is foreign owned. Surely this might imply a greater sensitivity to business rather than the reverse. As you will be aware Adam Smith's "invisible hand" was not that mechanism that reconciled private and community interest but a "home bias", a moral check on entrepreneurs who could produce overseas more cheaply. With more industry foreign owned this "home bias" is far less in evidence.

  5. "How business lost its influence on right wing parties"

    If business has no influence, how is it I am having to accept a pitiful interest rate on the savings that I have accumulated over my working life?


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