Conservatives Need Better Blueprint for New Economy

April 25 (Bloomberg) -- The first priority for governments in the U.S. and Europe is to engineer the fastest possible recovery from the Great Recession -- a job that the European Union, in particular, is bungling. Despite it all, recovery will come, and when it does the world economy is going to look different.

As I explained last week, recessions accelerate structural transformations, and this unusually severe recession will do so with unusual force. Without losing sight of the here and now, politicians in Europe and the U.S. need to examine their ideas to make sure they fit this new world.

Neither the left nor the right needs to abandon its basic worldview: The creative tension between conservatives’ trust in individual initiative and market forces and the left’s concern for fairness and solidarity will never be resolved, and trying to resolve it would be a mistake. But both sides have some rethinking to do.

Let’s start with the right. I’ll have something to say about the left next week.

Living With Risk

Conservatives need to recognize three crucial shifts. First, globalization and information technology are increasing the rate of industrial change. This is great for incomes in the aggregate -- in that respect, the right’s instinctive optimism about economic progress is as correct as ever. But faster change makes our economic lives riskier, and conservatives must not close their eyes to that.

Second, without new government interventions, the gap between winners and losers may continue to widen. The skillful, the adaptable and the lucky will do better than ever before. But there will be more losers -- and in relative terms, at least, they will have further to fall.

Third, the new economy will put different demands on infrastructure and other public services. Conservatives think that blunting market forces and trying to slow the rate of change would be a mistake -- and they’re right. But they should recognize that market forces can be blunted by neglect as well as deliberate action. To make the most of the new economic opportunities, governments need to augment market forces with, among other things, new kinds of public investment.

All three factors demand intelligent discrimination on taxes and public spending. The increase in risk means safety nets should be improved, not just maintained, and governments must help build better pathways from old jobs to new. That will cost money. The widening gap between winners and losers strengthens the case for smart nonpunitive redistribution from rich to poor. That means tax reform, not tax cuts for all. Public spending on education, training, and IT and other infrastructure is a good investment and should rise. That will cost money, too.

Europe’s center-right conservative parties, to a greater or lesser degree, are willing to give these issues some thought. The response of many American conservatives, unfortunately, is complete intellectual shutdown.

There must be no tax increases of any kind ever, they believe. All government spending, apart from defense, is waste. Is it even necessary to say how idiotic this is? There’s a difference between bridges to nowhere and, let’s say, universal access to high-speed Internet, which vastly widens new entrepreneurial opportunities. There’s a difference between a stupid income-tax system that raises little revenue because of loopholes and the simpler alternatives that could raise more for good purposes -- and more of it, proportionately, from the rich -- with lower marginal rates and hence less economic damage.

The Education Challenge

American conservatives need to start making these distinctions. If they did, they could stamp initiatives in the areas I’ve mentioned with their own priorities and values. Effort and opportunity are themes that come naturally to them, so go with that.

Adapting education systems to the new economic realities is a challenge that conservatives should be keen to take up. This is partly -- but only partly -- a question of public spending. Pouring good money into failing schools seems to be the preferred policy of the American left. Conservatives could combine confronting teachers’ unions and their hidebound contractual arrangements with a willingness to spend more on excellent new recruits (a hallmark of the most successful schools systems worldwide) and other educational assets. Noting that people will have to switch careers more often, they could explain how they’ll ensure wider access to lifelong education and retraining.

The themes of effort and opportunity also apply to safety nets and risk-sharing. For instance, support the poor with subsidies linked to employment -- a change in emphasis especially needed in Europe. The U.S. earned income tax credit is a pro-market, pro-productivity intervention that should appeal to all conservatives. It should be expanded and made more generous.

In a riskier world, and one where industrial-country demographic trends are unfavorable, public support for pensions and health care will need to be increased. In the U.S., the Republican Party has set its face against this. Its plans to contain the fiscal burden of Medicare, for instance, involve a gradual shifting of cost and risk to the system’s beneficiaries -- adding to rather than offsetting the pressures that the economy will bring to bear in any event.

This is an error. Conservatives shouldn’t be withdrawing fiscal support at a time when more will be needed. The right’s aim should be to emphasize the part that competition and individual choice can play in getting more out of these programs, and to ensure that the necessary funds are raised through an uncluttered tax system that does the least harm to incentives.

The next economy is going to demand unaccustomed flexibility from many more of us. Politicians may hope to be exempt. The sooner voters disabuse them of that idea the better.

(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

Today’s highlights: the View editors on stopping technology sales to tyrants and court hearings on Arizona’s immigration law; Margaret Carlson on the start of the John Edwards trial; William Pesek on the Reserve Bank of Australia; Peter Orszag on a post-election budget compromise; and Jack Hedin on U.S. crop insurance subsidies.

To contact the writer of this article: Clive Crook at

To contact the editor responsible for this article: James Gibney at

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