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Adam Smith Inst - Disaster corporatism will make us poorer

Government needs shrink in size and scope if UK is to ‘Build Back Better’

  • State failure lies at the heart of the Covid story, undermining the case for a greater role for government following the crisis
  • Businesses must return to their core competencies and avoid ‘Woke Capitalist’ distractions if UK economy is to recover from Covid crisis
  • Proponents of ‘Disaster Corporatism’—who use the pandemic as justification for more state involvement in the affairs of businesses—will undermine prosperity and fuel backlash against market economy

A new report, Capitalism after Covid: The Case Against Disaster Corporatism, from the Adam Smith Institute (ASI) argues that as restrictions across the UK are lifted, businesses and governments must return to their proper roles in order to kickstart the post-pandemic recovery.

Activists, academics and politicians from the political left have led calls for greater government intervention in the economy and a move towards ‘stakeholder capitalism’ in the wake of Covid. But these calls ignore the litany of state failures that characterised the crisis and downplay the risks of the corporatist model, as highlighted by the Wirecard scandal.

Report author and ASI Fellow Matthew Lesh argues that in an era of low public confidence in governments and businesses, the state must focus on effectively delivering essential public services and safety. Companies should stick to traditional profit-driven shareholder capitalism rather than pursuing ‘Woke Capitalist’ social objectives that often require political collective action—and often leave firms facing accusations of being cynical and hypocritical.

Although state support for businesses during the crisis was laudable and effective, this should not set a model for how governments should act during normal times. The growing size and scope of the state have wasted taxpayer money, misdirected economic activity, incentivised cronyism, held back competition, and limited human potential. 

The paper concludes by calling for new settlement between the state and private enterprise. It suggests the Government protects competition and free markets, rather than propping up favoured corporations and unproductive ‘zombie companies’. It asks for businesses to remember that the pursuit of profit is socially responsible: satisfying our desires, providing wages and funding public services.

Alexander Stafford MP, Member of Parliament for Rother Valley, said:

“I welcome the Adam Smith Institute’s ‘Capitalism after Covid’ paper, which highlights the importance of safeguarding and promoting the role of free markets, limited government, democracy, and individual rights in our society. Many on the left are exploiting the pandemic to make the case for a bigger state and restrictions on the private sector. However, this paper argues powerfully that for a successful recovery, we must allow our liberal free market system to flourish by business and government playing their proper roles.”

Matthew Lesh, report author and Fellow of the Adam Smith Institute, said:

“Covid has demonstrated the futility in overdependence on the state. We have grown poorer and millions have died across the world. A smaller, more focused state could be much more effective in tackling the issues we face. On the other side of the coin, to recover we need the private sector to flourish, free from excessively interventionist policies and focused on developing innovative products, creating more jobs and delivering profit for shareholders.” 

Daniel Pryor, Head of Research at the Adam Smith Institute, said: 

“From China’s initial cover-up to the painfully slow rollout of mass testing in the UK, Covid-19 has been a stark reminder of government incompetence. We must learn the right lessons from the pandemic and resist the siren song of ‘Disaster Corporatists’, who would use the pandemic to extend state interference in the economy—making us all poorer in the process. Stakeholder capitalism is a recipe for economic stagnation, rampant cronyism and widespread dissatisfaction with businesses. Government should get back to the basics of providing high quality public services while letting the market do what it’s best at: making us all better off.”   

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 0758 477 8207.

Matthew Lesh is Head of Public Policy at the Institute of Economic Affairs and Fellow of the Adam Smith Institute, where he was formerly Head of Research.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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Original article link: https://www.adamsmith.org/news/disaster-corporatism-will-make-us-poorer-post-pandemic

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