‘There’s nothing kind and compassionate about continuing to hand out money to a young person.’

What should we do about the nearly one million young people not in education, employment or training?

The Shadow Work and Pensions Secretary Helen Whately joined me on The Capitalist on the day the Conservatives unveiled their answer: a ‘Get to Work’ plan that would require under-25s claiming benefits to join an intensive programme from day one, or lose their payments.

We discussed the case for taking family finances into account when young people claim, as well as the party’s separate proposal for a prepaid benefits card for the long-term unemployed that would block spending on alcohol, tobacco and gambling. She also explained why she still sees Margaret Thatcher, not the 1970s Andy Burnham looks back to, as the model for a Conservative government.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Burnham’s 1970s socialism:

‘We all knew that Andy Burnham was a traditional, full-on left-wing Labour guy. But he went even further than I had expected in terms of how determined and passionate he is about taking us back to the 1970s. He really believes in full-throttle socialism. He really believes that the way forward is public ownership, bigger government, bigger state, unions, regulation. He talks about that as being the way to growth. As a Conservative, I find that extraordinary. And I don’t think the country buys into it. I’m sure Labour members will love it, and many – though not all – of his backbench MPs. But I think the country is more realistic than that.’

Labour’s lack of action on welfare:

‘We’ve got a very strange thing going on, where you get the odd quote saying they recognise there’s a problem with welfare – and then they do absolutely nothing. Andy Burnham is saying he’s going to introduce free social care, a massive spending commitment, with absolutely no plans for how he’s going to make savings from welfare and no plan for how they’re going to fund defence. That’s so extraordinary given that John Healey resigned as Defence Secretary officially on the grounds that he wasn’t happy with Keir Starmer’s commitment and the funding for defence. Now he’s actually got the power to find the money. He’s not finding it.’

Get to Work:

‘What we’re seeing is young people coming out of school, going straight onto benefits and being left there – sitting at home, maybe firing off some applications, maybe not, but not making any progress. And we’re saying that is not OK. Not for people so young, when they should be starting off in work and earning their first pay cheque. So under us, this would change. If you’re aged 18 to 24 and you haven’t been able to hold down a job, when you turn up and say you want to claim benefits, we’re going to say you have to sign on to our Get to Work programme. That’s going to be really intensive support – training, work readiness, support through applications and interviews. By participating, young people are able to claim a Get to Work allowance. But if they don’t show up, they won’t get those benefits. A really simple principle: you won’t be able to sit at home and just get the money.’

A sticking-plaster approach:

‘There are 300,000 fewer jobs under Labour, and those have particularly been in areas like hospitality, where young people often get their first chance of work. So very practically, they’ve been destroying job opportunities. Young people tell me what they really want is a real job, not just a placement. Labour are taking the money out one side and trying to put a little bit back in on the other. It’s a sticking-plaster approach to the problem. Our policy is different. From day one, we’re going to have different expectations of you. We’re not going to let you sit there and get used to claiming benefits.’

It’s not their money:

‘This is taxpayers’ hard-earned money, going to people who could be working but are not working. There is work out there. I accept that it’s harder now than it was, but there is work out there. And there are many taxpayers who are paying their taxes while they’re really struggling to pay the bills, denying themselves luxuries – or what many people would consider everyday essentials. We owe it to the taxpayer to make sure their money is looked after.’

Flowers, flares and the IMF:

‘I was a child in the 1970s. But one of the things I find extraordinary about Andy Burnham is that he’s making out the 1970s was some great era we want to return to. It was an era of strikes. It was an era of blackouts. OK, the flowers and the flares might have been great, but the economy was in a pretty bad way, and another Chancellor with the surname Healey went cap in hand to the IMF. And who turned our country around from that period? Margaret Thatcher did.’

Different choices:

‘Politics is about choices. The choice that Andy Burnham set out is that he puts social security before national security. His priority is free social care. Our choices are different. Our choices are about the economy and having a strong country.’

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Trump is right about Britain’s tech laws

Ben Ramanauskas

It’s been reported that officials in the Trump administration have given their UK counterparts a dressing-down over the Online Safety Act and the social-media ban for under-16s. As someone who previously worked on digital trade for the UK government, this does not surprise me.

Both the Trump and Biden administrations have seen British laws such as the Digital Services Tax (DST) and the Online Safety Act as irritants, arguing that they discriminate against American tech firms.

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Neither law was written with America in mind and on paper both are neutral as they apply to any qualifying firm regardless of nationality. However, as the US is home to most major tech firms, the burden of taxes and regulations on tech falls almost entirely on US companies.

In the mind of President Trump and his advisers, ‘discriminatory’ does not require intent and this is the crux of the tension. Although they don’t actually think that successive British prime ministers have sat down and said ‘let’s punish American tech’, they argue that while on the face of it a policy might be neutral, it can still have a discriminatory effect, and that trade law has long recognised effect as much as intent.

The Digital Services Tax is a clear example of this. As it is structured around revenue thresholds that only the largest global platforms clear, and because those platforms happen to be American, the US Trade Representative’s (USTR) has treated digital services taxes (such as the DST and similar levies elsewhere) as a form of discrimination against US firms.

This has been rumbling on for some time. For example, the first Trump administration launched Section 301 investigations into DSTs in multiple countries back in 2019 and 2020, and the underlying complaint hasn’t changed: these taxes look less like general business taxation and more like a targeted levy on a handful of American companies, dressed up in nationality-neutral language. And they don’t like it one bit.

The Online Safety Act raises a subtler version of the same concern. It’s not a tax, so it doesn’t touch revenue directly. However, compliance costs fall hardest on the platforms with the largest reach into UK users. Critics in Washington, including some free-expression advocates, have also argued that the Act’s rules around ‘legal but harmful’ content and its extraterritorial reach effectively let a UK regulator, Ofcom, set content standards for global platforms that then propagate worldwide. Whether or not this was the intention, it looks to American eyes like a foreign government using regulatory leverage to extract concessions from (and impose costs on) US firms specifically.

As discussed above, this has been bugging successive US presidents and USTRs for quite some time. It has become increasingly relevant as it shows how the current Administration views trade. Much of the attention has rightly been on the tariffs imposed on goods entering the US and Trump upending the rules-based system.

Trump’s tariffs and his hatred of imports are economically illiterate. However, the President and his trade officials are right to take umbrage with non-tariff barriers such as taxes and regulations and the impact they have on international trade.

The USTR’s current obsession with non-tariff barriers appears to be on Geographical Indications which is where a certain cheese or wine or even the humble Cornish Pasty gets recognition and protection by the government. I personally think that Trump is correct to take issue with this as it does favour incumbents, reduce competition and are a significant barrier to trade.

However, the USTR is concerned about more than cheese and sausages when it comes to non-tariff barriers. It has increasingly treated them as the primary battlefield of digital trade policy. It does so for a very simple reason: American firms dominate the tech industry and so almost any domestic digital regulation a foreign government passes will land disproportionately on US companies. This creates a structural asymmetry where the UK, EU and other jurisdictions see themselves as regulating their own digital markets in the public interest while also raising revenue. The US, on the other hand, sees the same measures as a pattern: sovereign regulatory tools being used, consciously or not, in ways that systematically disadvantage one of its most important export sectors.

This is all coming to a head now for three main reasons.

First, the DST itself was always meant to be a placeholder. The UK, like France and others, adopted it while waiting for the OECD’s global tax deal to reallocate taxing rights over digital profits. As things tend to do with the OECD, this process has stalled repeatedly, leaving national digital services taxes in place far longer than anyone originally intended. This hardens US objections that these were never really about tax policy but about capturing revenue from US firms.

Second, the Online Safety Act is now in force and with more to come. Ofcom’s codes of practice are now being applied, and the first real fines and enforcement actions against major platforms make the compliance costs and legal exposure concrete rather than theoretical.

Third, as discussed above, the US approach to trade policy has become much more assertive in general and specifically about non-tariff barriers. Trump and his team have decided that they have a legitimate reason for treating regulatory measures that burden American digital firms as targets for retaliation, rather than just complaining to an ambassador or ranting on Truth Social. Section 301 authority, once used mainly for intellectual property theft and forced technology transfer, is now squarely aimed at exactly this kind of regulatory friction.

So, where does this leave the UK?

While it may feel odd to read someone arguing that Trump is right on trade in the pages of CapX, it’s true. Many of the laws brought in by successive UK governments such as the Digital Services Tax and the Online Safety Act do discriminate against American tech firms. There are lots of other things wrong with them as well, but for our purposes they are a real barrier to trade and are increasingly trying the patience of the already mercurial and easily offended Leader of the Free World. The government should scrap them.

The UK government should also work with international partners to reform the trading system. I have spent the past few days in Geneva at the World Trade Organisation’s annual forum. The focus has been on services trade. While the World Trade Report rightly recognises the importance of services trade and the issues facing it, the report is light on solutions. The UK should use its position as a relatively newly independent trading nation to work with like-minded countries and blocs such as the EU, Canada, Australia, New Zealand and the other CPTPP members to push for a round on services trade where digital trade is prioritised and non-tariff barriers are highlighted and eliminated so that the rules-based system is fit for the present and the future.

It might be painful to admit it, but Trump is right in this regard. Andy Burnham should accept the admonition, repeal the Online Safety Act and Digital Services Tax, and work with international partners to remove other non-tariff barriers to trade.

Ben Ramanauskas is an economist and a former government adviser.

‘Economic growth isn’t just an abstraction. It’s not just a line going up on a chart. Economic growth is a revolutionary transformation in the living standards of everyday people.’

Why do so many people – on the Right as well as the Left – look back fondly on a pre-industrial world they would never actually want to live in?

This week on The Capitalist, I spoke to Chelsea Follett of the Cato Institute about her new book, ‘The Grim Old Days: An Introduction to the Preindustrial Past’, which will be published next month. It sets out what life was really like before modern economic growth: famine every few years, streets that doubled as open sewers and a world in which parents put their surviving children to work instead of playing with them.

We discussed why the fantasy of cosy village life is so persistent and how it feeds today’s scepticism about growth and AI. We also covered why the pre-industrial world was no environmental idyll, and what passed for entertainment when an execution was a family day out. Plus, the Dutch mob who killed and ate their prime minister in 1672.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Why growth isn’t just a line on a chart:

‘AI is often said to hold the potential of being the next industrial revolution. And how people view that is going to depend on what they think the effects were of the first Industrial Revolution on the living standards of everyday people. If they have a very negative view of the Industrial Revolution, and believe that it may have helped a few industrialists become wealthy but was basically a wash in terms of living standards for typical people – or even worsened the living conditions for the average worker – then they’re going to have a lot of scepticism toward AI, toward new technologies… I think that comes at least in part out of people not recognising that economic growth isn’t just an abstraction. It’s not just a line going up on a chart. Economic growth is a revolutionary transformation in the living standards of everyday people.’

Nostalgia on the Right and the Left:

‘All those who fantasise – whether it’s on the far Right about a return to feudalism, or on the far Left, those who advocate for degrowth and shrinking the economy and returning to this simpler, more sustainable way of life that they imagine characterised the world of our ancestors – these fantasies bear no resemblance to the reality.’

Hobbits in the Shire?:

‘There is this idea in the popular imagination that prior to industrialisation, people were essentially like hobbits in the Shire. They were in these happy, peaceful villages, breathing clean air, eating wholesome food in these warm, close-knit communities… And then the dark smokestacks of the Industrial Revolution, the satanic mills, as the poets said, came and disrupted this wonderful Eden-esque paradise… This, of course, cannot be farther from the truth. There were many terrible things about living conditions during industrialisation, but they were pre-existing. They were not new horrors that first arose with the construction of factories.’

The pre-industrial world wasn’t green:

‘Humanity has been altering our natural environment from the very beginning… If you look at the Domesday survey in 1086, at that point in time, 15% of England was covered by forest. But by 1340, that had fallen to 6%… Things like hunting were regulated, but it was entirely motivated by human relations. In the case of hunting, keeping the peasants in their place and not allowing them to hunt game that was reserved for the nobility was the primary motivation. Protecting wildlife did not even enter their minds.’

Poor but happy?:

‘People who say, well, they were poor, yes, they were materially worse off, but they had these warm, loving families, fail to recognise the actual reality of violence, mistreatment, death… In the past, life was much more isolated. And within your tiny village, there might not be very many partner choices. The people who were available to wed might all either be your first cousins… or they might have very large age gaps, or they might just be completely incompatible personality-wise with you… Many marriages were motivated primarily by economic necessity. So these were not necessarily these warm, wonderful families that we like to imagine today.’

No beating your wife after 9pm:

‘In 1595, there was a law in England that I’m going to read. It said: “No man shall after the hour of nine at the night keep any rule whereby any such sudden outcry be made in the still of the night, as making any affray, or beating his wife or servants.” In other words, no beating your wife or servant after 9pm. That was a noise regulation. It appeared in a list of laws that also included a rule against using a hammer after 9pm. Because beating your wife until she screamed was considered as ordinary as using a hammer. But if you were civilised, you wouldn’t do that after 9pm. You’d stop at 8.59 so that your neighbours could get some sleep.’

We’ve forgotten how bad it was:

‘I think that we have not only eliminated many of the problems of the past, but we have also eliminated the memory of those problems. People mostly do not recognise just how poor, how sickly, how violent, how devastating in so many different domains the past truly was… This book, I hope, will help people to recognise just how unusual our current moment in time is, and how fragile, perhaps, our anomalous high standard of living truly is, so that they never take their lot for granted.’

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Corporate welfare is Britain’s blind spot

Alan Hibben

Britain’s political class loves to talk about ‘reforming welfare’, but everyone knows the limits of that ambition. Voter Welfare – the £333.7 billion the state is forecast to transfer from taxpayers to households in 2025–26 – is politically untouchable. A population brought up on free cake is unlikely to vote for the plate being removed, at least until it stares a debt tragedy square in the face.

But there is another kind of welfare that receives far less attention and may actually be fixable: Rent-Seeking Welfare, or what is more bluntly called corporate welfare elsewhere. Unlike pensioners, corporations don’t vote – and British households don’t own many shares directly. In theory, this should make reform easier. In practice, the obstacle is not ideology but something more basic: the Government cannot see what it is trying to reform.

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The UK does not possess a coherent account of how much support business receives, who receives it, through which channels or what any of it achieves. Support is scattered across subsidies, grants, tax reliefs, loans, guarantees, equity injections, nationalisations, procurement rules and regulated returns. These are recorded on different bases, by different departments, and often without a common identifier for the final beneficiary.

The National Audit Office has been unusually blunt about this. In 2020 it concluded that ‘most schemes in our review lacked measurable objectives from the outset or evaluations of their impact to know if they are providing the most value or if they should be discontinued’. In its review of growth-oriented tax measures, the NAO found ‘too many examples where these reliefs either do not achieve their economic objectives or are subject to significant error and fraud, costing the Exchequer billions of pounds’. Meanwhile a joint costing project run by the Treasury and BEIS, using figures from 2016-17, found that government held recipient data for only 16% of business-support cost across the schemes examined.

This is a collection of poorly connected favours, not an investment strategy.

Even the official subsidy number – the ONS’s ‘transaction D.3’ category, running at around £36bn a year – is misleading. It excludes tax expenditures, preferential tax treatments, loans, guarantees, capital grants, public procurement, regulated returns and local-authority support. Add those in and the true figure is far higher. There is no requirement to count it, so nobody knows by how much.

The electricity system is a perfect illustration of the problem. Governments give grants to wind-farm supply chains. They also enter into Contracts for Difference that guarantee revenues to generators. The cost of those contracts is passed through to electricity bills. The Government then subsidises selected households to offset the costs its own scheme created. Energy-intensive manufacturers are exempted from some of these costs; other businesses are not. Low-carbon generators enjoy revenue certainty, except when wholesale prices exceed contract prices, at which point the payments reverse.

Is this a subsidy? A tax? A regulatory privilege? A consumer levy? A business exemption? All of them.

A non-exhaustive list of overlapping schemes – the Warm Home Discount, the Boiler Upgrade Scheme, Renewables Obligation support, energy-intensive-industry exemptions, network-charging compensation and the British Industry Supercharger – reveals a system in which costs are shuffled between taxpayers, billpayers, households and firms with no clear sense of purpose or outcome. The largest support to wind generators is not a grant at all, but Contract for Difference revenue support financed through electricity bills. The largest support to energy-intensive manufacturers, meanwhile, is exemption from costs that other businesses must still pay.

Tax reliefs are no better. R&D tax reliefs are set to cost around £8bn in 2025–26. Creative-industry reliefs cost £2.4bn in the latest published year. The Patent Box costs £2.3bn, with large companies – just 28% of claimants – taking 95% of the relief. Business Asset Disposal Relief is forecast to cost £800 million in 2025–26, though the cost spiked to £3.4bn in 2024–25 as disposals were brought forward ahead of a rate rise – and in any case it benefits owners selling businesses rather than the businesses themselves. These measures may or may not be economically justified. The point is that government does not know, because it does not evaluate them as a portfolio.

This is why reforming Rent-Seeking Welfare is harder than it looks. Politically, it should be simple: voters are not emotionally attached to corporate subsidies. Technically, it is a mess. You cannot reform what you cannot measure, and Britain cannot presently measure corporate welfare in any meaningful way.

The starting point for reform is not abolition or expansion, but visibility. Before ministers announce new initiatives – or defend old ones – government should be required to publish a common account of each support measure: the recipient, the instrument, the annual fiscal cost, other support received, the stated purpose and the evidence of additionality. Without that, Britain will continue to operate a system in which nobody can say with confidence how much support a particular business, sector or region receives – or whether the taxpayer obtains anything resembling a return.

Voter Welfare may be politically untouchable. Rent-Seeking Welfare should not be. But until Britain stops administering corporate support as a fog of overlapping schemes, exemptions and tax breaks, reform will remain a theoretical ambition. The first task is not to cut corporate welfare or to defend it, but to count it.

Alan Hibben is the co-author of ‘Suffocated by Tribunals’ and a former Managing Director in the Mergers and Acquisitions Group of RBC Capital Markets and Head, Strategy & Development at RBC Financial Group.

‘I genuinely believe we are one major geopolitical shock away from a proper meltdown. And it’s an ugly contest at this point between us and France.’

What does the fight for free markets look like in 2026 – and how can Britain escape its high-debt, high-tax, low-growth doom loop?

Liam Halligan, the new Director of the Centre for Policy Studies – and so now in charge of CapX as well – joined me on The Capitalist to explain why he decided to get more involved in frontline policymaking.

He argues that our perilous fiscal position today looks alarmingly similar to the mid-Seventies, when the CPS was founded to break a failing consensus, only two years before that same consensus forced Britain to go to the IMF for a bailout. Fifty years later, he says, the case for free enterprise and limited government must be won all over again.

We discussed why Britain’s debt interest bill is a moral failure, not just a fiscal one; why he thinks the market will not fund upfront tax cuts, however much he wants them; and why he blames his own trade – economics journalism – for leaving the public unequipped to hold politicians to account.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Why lead the Centre for Policy Studies now?:

‘It’s not an easy time to become the Director of the CPS if you want a quiet life. I think it’s a very interesting time to become Director of the CPS, and it’s precisely because of the bind our country is in that I decided to get more heavily involved in frontline policymaking – because I genuinely believe this is a once in a generation moment. This isn’t 1997 or 1998, as many people thought it would be, when Starmer won that huge majority. We’re 1974, 1975. We are literally on a fiscal cliff edge. The government is increasingly dysfunctional. The state is far too big. Vested interests are clogging up the economy, the country’s stagnating, there’s a growing sense on the international stage that the UK is diminishing. And I genuinely believe that Britain needs saving from itself at this point.’

Debt interest is out of control:

‘The fact that we’re spending 120 billion quid on debt interest – how many nurses and teachers and doctors could you employ for that money? How many hospitals could you build? And it’s dead money, because it’s just going to our creditors. Many of them overseas creditors. It’s not even going to UK-based institutions or UK-based savers in the main, who would then recycle that money back into our own economy. It’s going overseas. It’s undermining our exchange rate. It’s making us very, very vulnerable, as the phrase goes, to the kindness of strangers.’

The ghosts of 1976:

‘I’ve been saying it for a couple of years now, even before Starmer came in – I was writing that the ghosts of 1976 are going to haunt this government. I genuinely believe we are one major geopolitical shock away from a proper meltdown. And it’s an ugly contest at this point, I would say, between us and France.’

Why tax cuts can’t come first:

‘My view is that the Laffer Curve is completely real. Of course it is. You can see it happening already. Look what’s happened to CGT. Look what’s happened to the tax take from independent schools. Look what’s happened to cigarettes. Look at the energy profits levy – the annual total from that’s gone from like £10 billion to £2 billion, as North Sea activity’s been crushed by taxation, not by geological constraints. So the Laffer Curve is real, but the Laffer Curve also involves a J curve. Until the tax cut sticks and people believe it and start hiring more people, start acting on the lower tax, that tax cut will cost you money – and the markets have to finance that, at least for a short period of time… Of course we need to lower tax. But we’re in a situation now where the public finances are so weak, and successive governments of all colours have so fiscally mismanaged this country, that I don’t think the market will fund upfront tax cuts. So you have to have the fiscal consolidation first.’

The media’s failure:

‘I’m outraged at how the media, during my career, have systematically underestimated what ordinary people can understand and want to know about complex ideas, not least surrounding the economy, finance and business. My generation of so-called specialist broadcasters has completely failed the public. And the fact that the public isn’t helped to understand these things means that politicians think they don’t have to address them – which leads to increasingly irresponsible policymaking.’

Why big business likes more regulation:

‘Even more of the growth upfront, I would say, comes from policy moves that don’t cost money – which is lower regulation. But to lower regulation takes a lot of guts, because there are a lot of vested interests that want the regulation. A lot of our big businesses want regulation, because it stops small businesses having a go and it keeps their competitors at bay. Some big business organisations, industry lobby groups that I could mention, exist entirely to maintain regulation where it is, and maybe even increase it on their terms, to protect their market share. Sometimes being pro free markets doesn’t mean being pro big business. It means entirely the opposite.’

What makes him optimistic:

‘Our people. We have incredible people. I’ll always feel that about the UK. I’m from an immigrant family. I have that kind of gratitude of an immigrant… Britain is an incredible place to live, to work, to come from, to be part of and to help shape and influence. We are respected around the world. We’re known for fair dealing, good ideas, energy, great sense of humour, bad weather. Decent food these days – it’s getting better. But joking aside, we need to rebuild our confidence. I think we have lost our confidence in recent years, and a lot of that loss has come from the existence and the knock-on effects of a state that is now entirely out of control.’

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Why Labour are a bigger threat to jobs than AI

James Price

The Victorian economist William Stanley Jevons was clearly a worrier. When, in 1863, the Tyneside arms-maker Sir William Armstrong calculated that Britain’s coal would run out in 212 years, Jevons checked the sums. Armstrong had assumed the country’s appetite for coal grew by the same tonnage every year. But it actually grew by the same percentage. At that rate, the coal would run short, Jevons feared, within a century. In 1865 he published ‘The Coal Question’ to say so.

John Stuart Mill, an MP as well as a philosopher, raised this stark issue in the House of Commons and proposed, as a precaution, paying down the national debt (imagine such a novel idea being proposed today).

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Jevons’s name survives for a phenomenon he noticed whilst studying this use of coal. James Watt’s brilliant and revolutionary steam engine burned far less coal than the Newcomen engine that had preceded it. But because this huge increase in efficiency was so enormous, rather than using less coal, Britain burned far more of it because the scale of efficiency improvements increased the usefulness of the machine by so much.

‘It is wholly a confusion of ideas,’ Jevons wrote, ‘to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.’ This became known as the Jevons Paradox. Now, swap coal for AI compute and you can start to understand the modern AI economy.

When a piece of work can be done much more cheaply and quickly, the incentives are there to do much more work. Hence The Economist’s count last week of a million American jobs created by AI against 200,000 layoffs blamed on it.

All the doomsters and gloomsters who predicted mass job losses have, in the USA at least, been disproven. The Nobel economist Wassily Leontief predicted in 1983 that computers would see humans go the way of the horse after the tractor.

It is true that ‘computer’ was a job title before it was a machine. The knocker-upper, rattling a wooden pole against bedroom windows for a few pence a week, was still at work in the industrial north in the early 1970s. The lamplighter, the switchboard girl and the whole typing pool went the same way.

Of course some jobs have been lost to AI, and more will, but people seem determined to forget the principles of Schumpeterian creative destruction that have held sway for so long.

An exception, for the moment at least, as has so often recently been the case, is Britain. Jobs here have gone without the boom. Youth unemployment is 16.2%, up from 14.3% a year ago, and the euphemistically titled NEETs, young people not in education, employment, or training, passed a million this spring for the first time since 2013.

But no frontier lab did that. Terrible left-wing policies did. First, the former Chancellor Rachel Reeves raised employer National Insurance to 15% and cut the point at which employers start paying NICs on an employee’s earnings. This has been branded by critics as a £25 billion jobs tax.

Second, she cut rates relief for shops and pubs. And the result? The hospitality sector alone shed 89,000 jobs in the 10 months after Reeves’s first Budget. As we are still some way off robots pouring pints or waiting on tables, these job losses are squarely the fault of Labour. Then came the Employment Rights Act, which gives employees more rights from day one and will make every hire harder to undo from January.

I don’t need to explain the other macro causes of the economic weakness that is further exacerbating Britain’s job losses to a CapX audience, like the tax burden or industrial electricity prices that are the highest in the developed world. Suffice to say that the only thing more power-hungry than AI is, of course, leftist politicians themselves.

The way in which their damaging economic interventions beget more damaging interventions would seem familiar to a worrier like Jevons and his famous paradox. The big question is whether the new Chancellor, John Healey, can break the cycle, or whether he too will claim more power to meddle and cost Britain even more jobs. If so, let’s pray that one of those job losses will be his own.

James Price is a senior fellow at the Adam Smith Institute and a columnist for CapX.

‘The single biggest threat to our security is our debt level.’

Is Britain’s own debt now as dangerous as any foreign rival? This week on The Capitalist, I spoke to Daniel Hannan, the writer, peer and former MEP who has just taken over as Director General of the Institute of Economic Affairs – Britain’s original free-market think tank – at a moment when state spending sits at 46% of GDP.

He made the case that in an increasingly dangerous world, Britain’s economic weakness is a vulnerability we can no longer afford. With debt at £3 trillion and history suggesting our power abroad has always rested as much on deeper, cheaper capital markets as fighting spirit, he argues our stretched public finances risk emboldening our geopolitical foes.

We also discussed how lockdown broke the public’s understanding of what ‘the economy’ even means, why the electorate’s demand for spending deserves as much blame as any politician and how he plans to bring the free-market case to a new generation.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Why the economy is so misunderstood:

‘I think I was the first newspaper columnist to come out against the lockdowns in print, and I have never been so unpopular. And this is not online comments – this is neighbours of mine, people I knew at school, real flesh-and-blood people: “Why are you trying to kill my granny?” The phrase people kept using is, “you’re putting the economy before lives”, which made me realise that people do not mean what I mean by the economy. They’re not using that word to mean the system of voluntary transactions through which we pursue happiness and fulfilment. They understand it as some disembodied, numinous entity that churns out ingots of gold for Tory donors, or something, and is unrelated to them. Of course, the idea of “economy before lives” is as absurd as the idea of “people before profits” – how can you have profits without people? That’s when I realised just how bad the general level of understanding of economics is.’

Debt is our biggest security risk:

‘We’ve generally been quite good at wars – and one of the reasons we’re resented around the world is because we tend to be quite successful in them. But why? Was it just the fighting spirit of our men, impressive as that is? I don’t think it can have been only that. We were generally able to defeat countries with bigger populations and greater resources than ours because we had a technological edge, and because we were better at mobilising capital. If you take the 300 years up until the end of the Cold War – from 1689, when we entered the Nine Years’ War, right through the wars we fought against France in the 19th century, the imperial expansion, then the First and Second World Wars and the Cold War – we were able to defeat countries that on paper had every advantage: France in the 18th century, China in the 19th century, Germany in the 20th century. That was because we were technologically superior, and because we had deeper, cheaper money markets, which meant we could concentrate fiscal force. That is no longer true. We owe £3 trillion. Our debt is the fourth largest in the world in absolute terms, after the much bigger economies of the US, China and Japan. And our rivals have noticed. When Javier Milei made his emergency broadcast about the Falkland Islands, he was technically talking about Argentina, but I’m sure he knew what he was saying when he said: a country that does not have growth, and that is lumbered by debt, cannot enforce its sovereignty. That was true of the Galtieri dictatorship too. Who is on the better trajectory now economically, us or Argentina? That should be the concern for all these NatCon types who claim to be patriots. The single biggest threat to our security is our debt level.’

How the IEA changed minds:

‘We were in a very similar position when the IEA was launched in 1955. The Second World War had crushed classical liberalism under its tank treads. Six years of full mobilisation had – like Covid, but more – totally changed people’s expectations of state intervention. It was kind of unpatriotic to be an individualist in a mobilised economy. The Liberal Party, which had dominated the early 20th century, was down to 3% in the 1945 and 1950 elections. So what were classical liberals to do? I remember Ralph Harris, shortly before he died, telling me that they had had these agonised conversations: do we withdraw and wait for a more propitious time, like those monks in the west of Ireland copying up the scriptures, waiting for a happier time to come? And Ralph said: “Look, there’s no point. I do not want to spend the rest of my life giving papers to small audiences at the Mont Pelerin Society. We need to be in the business of changing minds, and changing politics, and changing policies and outcomes.” So the IEA began engaging with new Conservative MPs elected in 1950 – people like Geoffrey Howe, Nick Ridley, Enoch Powell. And the big breakthrough was with Keith Joseph, who of course then came and was your godfather – or indeed your father – at the Centre for Policy Studies.’

Reaching a new generation:

‘I’ve come to realise that, by the time people get to university, it’s almost too late. Think back: whom did you know in your first year at university, and how many of them really changed their minds? If we ask the same question about people we did A-levels with – loads. People’s opinions are more plastic when they’re still 16 or 17. I now regret, in my time in politics, having spent too much time on campus and too little time in secondary schools. If you put together all the people we reach through our schools’ outreach programmes, our future leadership programmes, the people we bring into the office, our summer schools in Cambridge, our interns – we’re getting to a little over 3,000 kids. That’s great and transformative for those kids: we’re opening their eyes to things nothing in the school curriculum has prepared them for, and what they see, they don’t unsee. But if we want to change the trajectory of the country, I need to add two zeros to that number. That’s really what I want to do at the IEA.’

Why AI won’t be different:

‘Every technological change has been met by fears about the destruction of jobs. Very few people focus on the gains. This goes right back to the mechanisation of agriculture. If you look at the response at the time – particularly in the Tory party and the Times, which was the old conservative organ in the 18th century – there was this wonderful thing happening: people were getting a lot more yield out of the same amount of land, which released lots of people from backbreaking labour in the fields. But the dominant feeling was that there were going to be no jobs for them – swarms of vagabonds traversing the countryside, “sturdy beggars”, as the phrase went – that it would disrupt the social order and we wouldn’t be able to feed them. What they couldn’t see – the unseen, as Bastiat would say – was that once you no longer had to work six days in the field to feed your family, because food was cheaper, you were released to do something else. So people went and did something no one had dreamed of before: they worked in these newfangled things called manufactories. For the first time ever, people on low incomes could afford changes of clothes, glass in their windows, cutlery. Foreign visitors to Britain were astonished by the quality of life of the poorest people. When we then made the shift from manufacturing to services, exactly the same fear was voiced: “What are they all going to do? Are they all going to be flipping burgers? Are they all going to be cutting each other’s hair? There won’t be enough jobs.” And just as before, not only were there more jobs, but better jobs, easier jobs, better-paid jobs. We were living much better, working shorter hours. The ultimate automation, if you like, is AI. Why should we assume it will be qualitatively different?’

Degrowth is a pose, not a policy:

‘We got a taste of this in the 2008 crash. I remember being in a debate in the European Parliament, and a friend of mine – a very nice man who was a Swedish Green – was fulminating against capitalism: it’s all failed, everyone’s losing their jobs, we always warned you this would happen. We happened to be walking out of the chamber together at the end of the debate, and I said to him: “I thought you’d be happy.” “What do you mean?” Well, you’re always saying GDP is too high, growth is too much of a big deal, we shouldn’t be flying, we shouldn’t be going on holidays, we’re consuming too much – you’ve literally got everything you said you wanted, and you’re still miserable. It is the wrong people who are suffering. What you realise is that anti-growth, degrowth is a pose. It’s not really a policy, and when people get it, they hate it.’

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Don’t hand China the future of AI

Damian Green

If you spend enough time in politics you learn to spot a familiar mistake dressed up as a novel dilemma. In the 1980s, Xerox forbade the American programmer Richard Stallman from so much as fixing a glitch in his own printer, on the grounds that the code inside it was proprietary. It was this small, almost comic grievance that lit the fuse for the open software movement. By the late 1990s, developers on both sides of the Atlantic had embraced the idea that code shared, copied and improved by many hands beats code hoarded by one company. The ‘open-source’ movement took hold even while closed-source code continued to thrive.

Britain and the US have in the decades since embraced both proprietary tech and their open alternatives. In allowing open- and closed-source tech to function side by side, we’ve reaped the rewards in innovation, in accessibility and in security. Just as important, in allowing both, governments avoided the kind of regulatory capture that would have let a handful of dominant firms lock the world’s code behind a paywall. Governments face the same issue today, and I fear they are approaching it with far less clarity than their predecessors managed.

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Proprietary and open AI models are advancing at a pace few governments can properly track. History offers a clear lesson for this moment: the policies that made open code the engine of Western innovation are precisely the policies Britain and America need now to out-compete a resurgent China. It would allow Western designers to build AI systems the world can actually trust, and stop a handful of dominant firms from locking the planet’s AI behind paywalls of their own making.

Clearly China already understands the importance of open source, though it puts it to rather less generous use. It opens its models not out of commitment to the free exchange of ideas, but because doing so could help wire the world’s developers into a system of its own design. Provided, that is, the West makes the mistake of doubling down on closed AI models.

The evidence is no longer in dispute. The Chinese firm Z.ai has recently released a model that competes almost on equal terms with Anthropic’s most advanced ones. Alibaba’s freely released models have already spawned real and powerful capabilities of their own. Chinese builders are now bound to this ecosystem, creating an army of loyal developers. Meanwhile the closed American model earns its owners a subscription fee and precious little else.

So let us be honest about the choice in front of us. The question is no longer whether artificial intelligence will be primarily built with open or closed models. China has settled that question for us. Its ecosystem will keep growing regardless of anything Westminster or Washington decrees. The only question left is whose open ecosystem the world builds upon. Britain has already made a start through the SOFAIR lab, a collaborative project bringing together top research talent from University College London, Oxford, Cambridge and Edinburgh in a national effort to develop next-generation open-source AI technology. In combination with America’s own open-source technology projects, it could help build a partnership among our two nations strong enough to outpace China.

The UK is currently one of the main hubs of AI technology development, with more than a dozen unicorn companies offering cutting-edge services. Some of these developed their own closed models. Others, like Stability AI and Fetch.ai, used open source to develop successful business concepts. And of course Google DeepMind, which is both founded and based in London, regularly releases open-source AI models, most famously its AlphaFold model which serves as an open-source research tool for the development of new medicines.

It should be obvious therefore that the most productive approach would be to let closed- and open-source models compete on an equal footing. Instead we find ourselves discussing whether open source should even be allowed. The debate is most intense on the other side of the Atlantic, but Britain has also started feeling its impact. This spring, NHS England announced it was restricting access to open-source code, ordering repositories to be made private by default. It was a classic example of government overreaction tackling a genuine problem in the wrong way: researchers using Anthropic’s Mythos had found serious vulnerabilities in open-source software used across the NHS, and alerted NHS England. Yet the very researcher who found them warned that locking down the code would not improve security. The guidance had already gone out, though, by the time that warning was heard.

It is a familiar pattern that the loudest warnings against open models come from those with the most to lose from them: the AI mega-firms whose engineering is world-class, but whose commercial instinct is to caution against the very openness that first made Western technology the envy of the world. A rented black box must be taken on trust, full stop. An open model can be examined, tested to its limits, and run inside a secure facility where not a single byte of data need leave the room.

My advice, therefore, is straightforward. Our government, including the NHS, should lean hard into open-source technology, and persuade the American government to do the same. Thereby allowing developers to build upon it freely.

The deeper danger isn’t losing to China, though that would create its own problems. It’s dependency that blocks the kind of creative development that would allow us to reap the full potential of this new technology. The nations whose standards the world adopts win far more than the nations that merely rent their software by the month. An AI ecosystem that is growing and allows any developer, small manufacturer, or university lab to examine, adapt, and build upon is not merely safer. It is an engine of prosperity that a handful of proprietary platforms could never match.

Open standards helped put the personal computer on every desk and the internet in every pocket. They did not impoverish the firms that built the underlying platforms, they multiplied the industries built on top of them a thousandfold.

Set AI free in the same way, and the dividend will not accrue just to London or Washington alone, but to every economy with the wit and grit to build on it.

Damian Green is a former First Secretary of State and Acting Chair of the Commons Culture, Media and Sport Select Committee.

‘The rhetoric now is all about public control being the key to driving economic growth, which is, of course, nonsense at all sorts of levels. For a start, public control doesn’t really mean public control. If you want public control, you can do that through the markets. State ownership is something a bit different.’

Will the man who paints himself as the antidote to Thatcherism lead us back to the worst of the 1970s? This week on The Capitalist, as Britain’s borrowing costs spiked and Andy Burnham faced MPs as Prime Minister, I spoke to the economist Julian Jessop about Burnham’s plans – and whether they can really get Britain back to growth.

We discussed whether nationalisation is a recipe for reducing the cost of living, and Burnham’s curious belief that Britain’s current condition – with taxes at record levels and the state bigger than ever – can be labelled a failed experiment in neoliberalism.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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On Burnham’s ‘public control’ rhetoric:

‘What we are now starting to see, I think, is the lurch to the Left that many people feared when it became clear that Burnham was going to take over as Prime Minister. So the rhetoric now is all about public control being the key to driving economic growth, which is, of course, nonsense at all sorts of levels. For a start, public control doesn’t really mean public control. If you want public control, you can do that through the markets. State ownership is something a bit different. That means ministers – who often have no private sector or business experience whatsoever, and frankly often are just in hock to the trade unions – will be making big decisions, providing public services and investing lots of taxpayers’ money. And it’s far from clear this will produce any sort of improvement in the economy or the cost of living.’

On reversing Thatcherism:

‘Burnham's spoken a lot, particularly before he became Prime Minister, but certainly afterwards, about reversing Thatcherism and neoliberalism. Not quite clear what he means by those terms, but those of us who just might consider ourselves Thatcherites or neoliberals or free market economists had a sort of hollow laugh at that. The idea that we've moved further towards a free market economy over the last 10 or 20 years is clearly nonsense, given very high levels of state intervention in the economy, very high levels of spending, tax, regulation… Not just under the previous Labour administration, but under the Conservatives. Late-stage Sunakism, in particular, was highly interventionist. He’s got this bee in the bonnet that he just needs to reverse this “lurch to the Right” and somehow things will be a lot better.’

Will nationalisation keep costs down:

‘For me, it basically still comes back to incentives. Private sector businesses have one set of incentives. They obviously have incentives to keep prices down, provide goods and services at the lowest possible cost. Usually that works in favour of consumers. Some people would then say, well, actually public ownership would be good because public companies will prioritise the interest of consumers – but not necessarily. They may well prioritise the interest of workers or the trade unions that are very important in public sector organisations. It might be they prioritise the interest of politicians. So rather than obsessing about exactly who owns a business, or who provides the goods and services, have a look at what the incentives are. And I think in almost all cases, a well-run private sector company with good regulation – if regulation is needed at all – will produce a much better service, at a much better cost, than the same business in the public sector run by ministers or civil servants in Whitehall.’

Why privatisation’s successes get forgotten:

‘There is a perception that companies are bad in some way, and that profit is bad. And that sort of explains the rise of the Greens in particular, with their strongly anti-capitalist rhetoric. It is very frustrating, the way, for example, that rent controls are being seriously discussed as a policy option in this country, despite the overwhelming evidence, both in this country and elsewhere, that rent controls backfire and end up hurting the very people that they're supposed to help.'

Markets think longer-term than politicians:

‘Politicians have often actually shorter time horizons than the markets do. People often say that companies only care about the next quarter’s profit numbers, but that’s simply not the case. If you look at how small companies are rated by investors, they’re clearly taking a much, much longer view. Lots of highly valued tech companies, for example, haven’t made any money yet – but nonetheless the market can take a five or 10 year view and say those will be the big companies in five or 10 years’ time. So the market’s perfectly capable of taking a long-term view, not worrying merely about the next month or quarter of profit numbers.’

What’s coming in the autumn Budget?:

‘The reality is that the UK is paying the highest cost of government borrowing of any comparable economy. And on top of that, the numbers are a lot higher than the Office for Budget Responsibility was assuming the last time it ran them, in March earlier this year. … It's very difficult to see how this Government in particular can square the circle without raising taxes even further. … I think everything is pointing to another big round of tax increases in the Budget. We've already got clear signs it will focus on two things. One is taxes on the so-called wealthy – it doesn't mean new wealth taxes, it means raising the taxes on wealth we've already got: targeting capital gains, targeting property values, targeting pensions, which sort of fits in with Burnham's ideological redistributive agenda. The other thing he's going to target is what he regards as antisocial businesses, or antisocial practices by businesses, like making windfall profits when interest rates go up or when energy bills go up. So I think there'll be some more badly-judged tax increases on the energy sector and on banks, even though those sectors already pay a lot more tax than other types of business do. It's going to be the usual dog's breakfast of itty-bitty tax increases that don't really repair the hole in the public finances, but collectively just increase the complexity of the tax system, discourage investment and entrepreneurship.’

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Britain invented the data centre – why can’t we build them?

James Price

In 1943, a Post Office engineer called Tommy Flowers built a codebreaking machine out of 1,500 thermionic valves, partly out of his own pocket. Within a year Colossus, the world’s first programmable electronic computer, was cracking Nazi High Command ciphers at Bletchley Park. Britain had invented the data centre, in a large shed, and chock-full of hot electronics that quietly helped us win the war.

Alongside the Town and Country Planning Act and the squandering of the Marshall Plan money, Britain shot itself in the foot in this regard after the war. We destroyed Colossus in a colossal act of self-harm. The machines were broken up, the blueprints burned and Tommy Flowers was sworn to silence for 30 years.

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We are at it again. I have previously warned in these pages that an unholy alliance of eco-doomsters and Liberal Democrats (but I repeat myself) was trying to block Britain’s data centres with water-usage claims the figures simply do not support.

This negative spin is happening at the same time that AI is becoming the only engine of growth that the British economy has. The ONS reckons the ‘information and communications sector’ provided nearly half of last quarter’s growth. £22.1 billion of capex was spent on plant and machinery in a single quarter as the data centres we do have were built.

And this nonsense is happening across the West: a pollster has found that three quarters of Americans now oppose a data centre near them, a 33-point negative swing in a year. As a result, a whopping $64 billion of projects have been blocked or delayed by local opposition, says Data Center Watch, and both the GOP and the Democrats now blame electricity bills on the server farms. As a minor satrapy of the American Empire, we can expect to catch this same sickness. In Britain, we can force £100 million to be spent on a bat tunnel; imagine what our planning system will do with a gigawatt campus.

Elon Musk named his Memphis, Tennessee supercomputer Colossus in honour of Bletchley Park. He built it in 122 days, not much longer than the time an English data centre spends waiting for a pre-application advice letter. Musk grew so impatient with such permits that he put the power station that runs Colossus over the road – which just happens to be in Mississippi – in an act of incredible regulatory arbitrage. As a result, he’s closing in on the frontier labs and the promise they bring of huge economic and social benefits.

Britain doesn’t seem to be acting as though Artificial General Intelligence could be only a few years away. But other countries are. The Chinese Communist Party clearly understands the importance of this buildout to the Second Cold War in which we find ourselves.

As Dalibor Rohac argued here in CapX, this is verging on national security territory now. British industry already pays some of the highest energy bills in the world (that is what years of Ed Miliband treating cheap power as a moral failing gets you). But the risk of being left without compute to defend our critical infrastructure from advanced AI attacks by our enemies will soon be existential.

We can take inspiration from other countries getting it right, in the face of challenging odds. The UAE, for example, is well ahead of the curve. Dubai is already home to the world’s largest solar-powered data centre, has installed chief AI officers in 22 government departments and has a clear, serious and ambitious plan to invest in AI and to integrate it across its public sector. Of course, it’s easier with no parish council to placate but the comparison is staggering. Later this year, the UAE is set to open a 200 megawatt data centre cluster, making Britain’s best efforts – a 148 megawatt site outside Cardiff – seem more pygmy than colossus. In terms of AI companies, Dubai intends to lap London by reaching 10,000 firms by 2030. If compute can be conjured out of the literal desert, surely Slough can do it too.

In Japan, SoftBank has gone into business with OpenAI and is converting a defunct Sharp television factory into an AI data centre, showing how we could use brownfield. And even Singapore, which has real land, energy and water constraints, is creating compute in extremely humid conditions.

Back in Britain, Bletchley Park, where Flowers made that first data centre, is a museum now. We go and watch a rebuilt Colossus clatter away, buy a fridge magnet and glow with pride at what the Britain of our grandfathers managed to do when it was serious. Then we drive home past empty fields where we know the future will not be built.

‘I think it would be easier if, instead of doing rounds and rounds of paperwork, we just stuffed people’s mouths with gold, but told them they don’t get a choice – it’s happening. I feel that’s what the French would do, and they are better at building stuff than we are.’

This week on The Capitalist, I spoke to the writer and CapX columnist Jonn Elledge. His new book ‘31 Inventions That Built Our World’, surveys the technologies – from sewers to lifts – that make urban life possible. We discussed what it takes to keep a modern city running, and whether we are losing our nerve when it comes to building twenty-first century infrastructure.

We also talked about the PT Barnum stunt that convinced the public it was safe to ride in a lift, why nowhere on Earth held more than about a million people until the 1800s, the speed limit that stood in the way of commuting and why market pricing – not more regulation – is the answer to the mess we’ve made of urban space.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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How Britain can get more built:

‘My instinct is that this country would probably over-consult and under-compensate. I think it would be easier if, instead of doing rounds and rounds of paperwork, we just stuffed people's mouths with gold, but told them they don't get a choice – it's happening. I feel that's what the French would do, and they are better at building stuff than we are... I don't think it's entirely unreasonable that we give people some compensation. But we should do that while also saying: you don't get a veto on national infrastructure.’

How lifts made skyscrapers possible:

‘One of the real problems with having a very tall building is how on earth you get up and down it, because the stairs are exhausting to climb. So lifts, and getting people to feel safe travelling in them, were essential – without that, you basically can’t do tall buildings. And steel-frame construction isn’t the only thing you need. There’s also the steam pump. It’s not until you have steam pumps that you can put water under pressure in a way that means you can get it to flow upward. Before that, if you wanted water at the top of a tall building, you were literally carrying it up – and even in slave societies, that’s exhausting work.’

On the size limit of cities before the 1800s:

‘For a lot of history, 10,000 people would be a huge city – 50,000 would be enormous. Ancient Rome, medieval Baghdad, early modern Paris, London in about 1800, probably all hit around a million. But that’s about the most people you can get in a place, because beyond that it just doesn’t function – people are too far from the food supply, and you get too much waste. It’s only with the Industrial Revolution that you suddenly get more than that in a single place, because the economy is functioning differently, and because you have different sorts of transport systems starting to come on stream.’

Do our cities give cars a free ride?:

‘Cars are a good example of externalities at work – we don’t charge people for their use of road space or parking, both of which are scarce resources. So I think you can solve a lot of these problems without fundamentally attacking people’s freedom of movement, just by introducing market signals. … Road pricing is difficult politically rather than economically.’

The truth behind the LA streetcar conspiracy:

‘Los Angeles had one of the best urban transport networks in the world – the red cars and the yellow cars, one running through downtown, one connecting the city to its suburbs. That’s how Los Angeles grew: around public transport. The version of the story in ‘Who Framed Roger Rabbit’ is that a conspiracy of motor industry interests bought up the streetcar network and ripped it out so they could sell more cars and build more freeways. That’s not entirely untrue, but it’s mostly untrue. There was a conspiracy – but it was actually about selling tyres. The reason streetcars failed as a technology in the mid-20th century is that they looked incredibly backward. They were a product of the 19th century, and cars were coming in and were a sign of wealth.’

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Each week we bring you an example of the best writing from CapX, read aloud. For hosted conversations, listen to The Capitalist, every Wednesday.

‘Economic growth… is not just about individual well-being, it’s not just about prosperity, it’s also about the ability of Western democracies to scale up their defence budgets. It’s about our ability to outproduce our adversaries.’

Are Nimbys a threat to national security? Britain’s inability to build houses and infrastructure is rightly at the heart of our domestic political debate. Dalibor Rohac thinks it needs to be seen as a geopolitical failing as well.

This week on The Capitalist, I sat down with Rohac, incoming director of research at Globsec, to discuss his new book ‘Unshackled: How Economic Growth Can Defeat the World’s Dictators’. We also discussed how to defend Western institutions while still building fast, what Mancur Olson can tell us about vetocracy, whether letting China into the WTO was a mistake and why chasing foreign students out of American universities is an own goal.

Rohac’s argument is that the accumulated sludge of special interests and regulatory stasis which reduces growth and stops houses and reservoirs being built has serious security implications – such as the shortfall in defence production across the West. Free markets can deliver in ways that more centralised systems cannot, but only if the shackles are taken off.

He remains an optimist, on the grounds that free societies have a remarkable power for self-correction. But who will stand up as a new champion of the Western order? A new Reagan or Thatcher may be harder to find.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Why growth is a geopolitical issue:

‘This book emerged in my mind after Russia’s full-scale invasion of Ukraine in 2022. I was puzzled by two things. First of all, I was puzzled by the fact that the collective West – the EU, the UK, the US – have been quite ineffective in trying to build a broad-based coalition of countries that could hold Russia accountable and apply sanctions. From Indonesia to India to South Africa to Brazil, much of the so-called Global South just decided to sit this one out. And secondly, I was stunned by the fact how Russia, despite all of its economic and demographic and other weaknesses, has been able to outproduce us when it came to the defence industrial base in many sectors. To this day we are sort of struggling to restock stockpiles of artillery shells, high-precision missiles and many other weapons. And I was trying to think about the drivers of this kind of fecklessness, this lack of effectiveness on the part of the West. And I think fundamentally the reason boils down to the fact that we’ve done a whole lot to squander our soft and economic power in recent years and decades. Economic growth is a strategic variable. It’s not just about individual well-being, it’s not just about prosperity, it’s also about the ability of Western democracies to scale up their defence budgets. It’s about our ability to outproduce our adversaries.’

Nimbyism blocks more than new homes:

‘What my book tries to argue is that there is something that could be described as Nimbyism, broadly understood – the collective assortment of vetocracy and regulatory stasis which has been pervasive throughout our economies. That is the same thing that prevents housing from being built in the Bay Area, that drives the cost of infrastructure projects to astronomic heights, that prevents us from adding new capacity in electricity generation. And that’s the same force that also makes it very difficult to produce artillery shells at scale. Obviously the specifics will differ country to country. I think one way of understanding the problem is by going to the great economist and social theorist Mancur Olson and his theory of special interests and distributional coalitions – how those add up over time to a system in which it is very difficult to get anything done, and in which these overlapping distributional coalitions effectively paralyse the economy. He calls this process institutional ossification, and he then argues that it takes a big crisis to shake those interest groups off.’

On populism’s own goals:

‘One of the greatest strengths of the United States during the Cold War era has been its ability to leverage international talent and inward migration – the whole generation of wartime European refugees that settled in America. I think that should have been one of our strengths in this new Cold War against China or Russia or Iran. Everybody is trying to get to the West. And today the administration is busy trying to chase away students who are trying to come to the United States, is trying to kick out researchers at universities, putting its hostility towards international talent on display. And that’s very much an own goal that I see very little justification for. It’s driven by this populist impulse, but channelled in a very unhelpful direction. And I think the same could be said about our trade policy, or lack thereof. We should be building broad-based coalitions – for our allies and for ourselves – to build alternatives to a dependence on Chinese supply chains. We are doing the exact opposite.’

What defines the West?:

‘To me, the West is not a geographic category. It’s not a category that could be defined ethnically or racially. To me this is a category that’s defined primarily through institutions. Countries that embrace liberal democracy and a free market economy, to me, fall into this basket. And I think that makes them naturally very like-minded and aligned in some fundamental ways. We can debate that as an empirical proposition, but I think the intuitive case for this is quite strong. The empirics of democracies not fighting wars between each other is also quite compelling.’

On the hidden power of free societies:

‘At a very basic general level, I have a great deal of faith in the self-correcting ability of free societies. We can discuss things, we can see what has failed, what works, we can learn from past mistakes. I think that’s the biggest advantage that we in the United States and in Europe and the UK have over the unfree societies. I mean, Vladimir Putin can’t really get himself out of this war in Ukraine that he started. We have the ability to reconsider. Very often when you look to the past, it’s been the same administrations, the same political leaders who drove into the ditch that then changed course and shifted trajectories. The big push for deregulation started in the 70s under President Carter, and so on and so forth. So in a sufficiently long sweep of history, I’m optimistic. ... Insofar as America remains a free society, it can basically get itself out of any hole it’s in, no matter how deep.’

Do we need a new Thatcher or Reagan?:

‘I mean, it is very hard to look up to similar examples today. One of the challenges of the present moment is that our voters in the present information ecosystem get tired of incumbents very quickly, no matter how well-intentioned or thoughtful they might be. And I wonder whether we’ll see a new generation of Thatcher or Reagan-like leadership. But history suggests that we need it. It will be very hard to make any headway without.’

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Penrose argues that what we need instead is full transparency about the state’s liabilities. Any honest reckoning would include the future cost of the state pension, already running at over 220% of GDP. Rather than fudging the figures yet again, Burnham should build Britain a proper national balance sheet. With an honest set of numbers, we can finally have a proper conversation about how to reduce the stock of debt.

Each week we bring you Despatch – an example of the best writing from CapX, read aloud. For hosted conversations, listen to The Capitalist, every Wednesday.

‘Be careful. Understand that this thing is difficult to control. Once you unleash these forces, they tend to go in surprising directions.’

Richard Hanania had a ringside seat for the rise of MAGA, as his Substack essays on anti-woke issues gained traction at the highest level of the new American Right. He had great hopes for Donald Trump’s second term, and coined the term ‘Tech Right’, hoping for an administration that worked productively alongside some of the smartest people in Silicon Valley. In practice, the second Trump presidency has proved, he says, ‘a nightmare scenario’.

Hanania’s new book ‘Kakistocracy’ is an attempt to understand what went wrong – and the wider lessons as populism continues to gain ground around the world. He argues that populists, for all their promises of overthrowing corrupt elites, often end up replacing a flawed system with something far more damaging – ‘rule by the worst’.

On this model, elites can be foolish and subject to groupthink, but they are held in check by a status game that rewards honesty and truth-seeking. Populists, by contrast, gain power from their unfiltered relationship with voters, which makes corruption and lies easier to get away with, and encourages zero-sum thinking.

But what about the pro-market successes of a populist like Javier Milei? And what are the risks for the UK, where Reform UK have a real prospect of forming the next government? This week on The Capitalist, I asked Hanania for his take. He doesn’t rule out the prospect that a party like Reform could bring in radical reforms that are good for Britain. But it is a strategy with a big warning label: once these forces are loose, nobody controls where they end up.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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On the ‘Tech Right’:

‘I coined the term “Tech Right” back in 2023. And I thought these people were less populist, they were libertarian, they were obviously smart. To the extent there’s been a human capital deficit on the Republican side since Trump came along, there would be a solution to that, too. And they had money, and they had influence and they had large voices. You’d think they’d shift the American Right in their direction. But the lesson of the last ten years is that the Trump cult is just much, much more powerful. They were spending all their time on Twitter and getting a lot of brainworms – they didn’t stay who they were when they went over to MAGA. They became more MAGA than they influenced the Trump coalition. It’s a good lesson that no matter how smart you are, you need healthy epistemological standards and connections.’

On Reform UK’s prospects for success:

‘I wouldn’t say it’s completely crazy. The UK is stuck, and if you think there’s some reform Farage will enact that nobody else will, that’s not a crazy way to view the world. I’d just say: be careful. Understand that this thing is difficult to control. Once you unleash these forces, they tend to go in surprising directions – when people were supporting Trump in 2015 and 2016, there wasn’t a hint that anti-vax would end up being part of that coalition.’

What makes someone elite?:

‘What distinguishes elites is not just money or power – Donald Trump is an elite in that sense, so is Elon Musk. It tends to be that they’re playing a status game where they primarily care about the opinions of other elites. Populism is the opposite: someone powerful and influential, but whose source of power is a direct connection to the audience. Trump becomes president not because the Republican Party picked him – in fact they really didn’t want him – but because he had a direct relationship with the voters.’

On AI as an anti-populist technology:

‘AI seems to me one of those technologies that takes us in a less populist direction, because people tend to trust it, and it’s smart – it’s like having a smart person directly talking to you about the issues you care about. The problem with conspiracy theorists is they’ll drop the names of ten studies and you’d have no idea what they’re talking about. What AI can do is actually look up those studies, see if they exist, see what’s wrong with them, and point it out in detail. And if it’s nonsense, you’re not going to convince ChatGPT that anti-vax is true – it has other information at its disposal, and it will hold its ground.’

On defending free markets in a populist age:

‘It's kind of a short-term versus a long-term thing. Trying to convince elites is going to be very hard, but if we get an elite that's open to these ideas, free markets will be on a firmer foundation than they've ever been before – and historically, more educated people have been more pro-market. Populism is a path to sometimes short-term success. Switching elite opinion on these questions is the only long-term goal for free markets to be viable and safe in the long run.’

Is populism ever worth the risk?:

‘Maybe it’s worth it. Maybe your elites fail so badly that what populists say about elites in Argentina, or pre-Bukele El Salvador, is actually true. But they’re usually not that bad, I don’t think, in the US or the UK.’

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But Basharzad argues that the incident show a much wider failing in the EU: how the weakness of one member state can impose huge costs on the rest of the bloc. From fiscal policy to free movement, the union is rife with moral hazard. To rein in bad actors, it needs to restrict the benefits of membership to those who follow the rules.

Each week we bring you Despatch – an example of the best writing from CapX, read aloud. For hosted conversations, listen to The Capitalist, every Wednesday.

‘Trying to get rid of the price system is a few steps down the line towards full communism.’

Britain’s ‘equal value’ pay rules go well beyond upholding equal pay for the same work, and mean that tribunals have the power to ignore the market and decide that bin men and teaching assistants should, in fact, be paid the same. These rules bankrupted Birmingham City Council, and the big supermarkets are already facing claims worth up to £8 billion for back pay. Now the Government wants to expand the law further, adding race and disability to the list of grounds on which you can bring a claim.

This week on The Capitalist, I sat down with Alex Tabarrok, Professor of Economics at George Mason University and co-founder of the blog Marginal Revolution, who wrote a viral post in 2024 on Britain’s ‘Orwellian’ approach. He walks through the madness of trying to rule by committee on how to treat apples and oranges the same, and explains why trying to set a just price is like suing the weather.

He says we’ve somehow ended up in the worst of all worlds: instead of the old Marxist fantasy of a scientific bureaucracy making economic decisions, we have a tribunal system everyone can see is broken, spending years and generating hundreds of pages of documents to produce nonsensical outcomes. Tabarrok argues our pay rules are part of a much bigger pattern: well-intentioned rules piling up like pebbles in a stream, until the stream – the economy, innovation and growth – is dammed. And sometimes only a sharp rap on the head from reality can restore policymakers to their senses.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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Do politicians need economics lessons?:

‘Everyone needs to read their Adam Smith. Adam Smith literally talked about these kinds of problems. He talked about, you know, what he called compensating differentials. In the Next case, which was comparing retail workers with warehouse workers, the warehouse has got all kinds of issues. It’s very noisy. It could be a little bit dangerous. But the tribunal had said, no, these jobs are equal. But the lead plaintiff of the retail workers said, if you want me to work there, you’d have to pay me more. What more can you say?’

On tribunals for apples and oranges:

‘The fundamental problem is that trying to get rid of the price system is really a few steps down the line towards full communism. I don’t want to sound hyperbolic, but it is true when you get rid of the price system. Essentially what they're trying to do is compare apples to oranges. ... How would you do that? … If I don’t sell my apples, I can turn them into apple pie or apple juice, but there’s no orange pie. So I can’t do that. So you have to compare that. Or there’s orange juice. Okay. But do people like orange juice as much? Just trying to even think about the innumerable comparisons that you would have to make shows you that this is why we have markets.

And suppose we get to a situation where we’ve decided, okay, we’ve got the just price between apples and oranges. We have solved the apple-oranges tribunal problem. Well, suppose then that it’s announced that oranges reduce cancer. Linus Pauling was correct. Vitamin C is good. Oranges reduce cancer. Now everyone’s going to want to buy oranges. Okay. Well, how are you going to get more oranges? The price has got to go up, right? But we just said we created the just price, and presumably the labour in apples and oranges has got the just price. But now how are we going to get more labour to produce oranges now that people want more oranges? Well, we have to pay more. We compared apples and oranges and apple workers and orange workers, and we said we were at the right number. But now we need a higher price of orange juice and more orange juice workers in order to get more oranges. So what are we going to do? We’re finished. Getting rid of the price system is a very, very bad idea.’

On the idea of a just price:

‘Hayek said, look, justice is about how we treat one another. The price system, in contrast, is not created by anyone. I didn't decide the price. You didn't decide the price. Tesco didn't decide the price. Okay, you might think they did, but no, everything is decided through this decentralised market system involving millions of people, most of whom you will never, ever meet. And a lot of situations, facts and figures, none of which people ever understand. It's like evolution. It's a decentralised process. And in that sense, justice just doesn't apply because it's not something that I did or something that you did. It's like the weather. So trying to make a just price is like trying to sue the weather for raining too much.’

On regulation as pebbles in a stream:

‘The first pebble you throw in, it’s fine – there was a good reason for it. Then you throw the second pebble, it’s okay. The third, the fourth, they all start to interact with one another. You’re building a more complicated and complex system over and over again. Each pebble might be a good idea on its own, but a lot of good ideas turn into a bad idea. And now you’ve dammed the stream. And the stream is the economy, the stream is innovation, the stream is growth, the stream is progress.’

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Houchen argues that handing over a share of business rates and income tax counts for little if mayors are restricted from choosing how to spend the money – or whether to offer a tax rebate instead. The proposed arrangement is more like pocket money with strings attached – devolution in name only.

Each week we bring you Despatch – an example of the best writing from CapX, read aloud. For hosted conversations, listen to The Capitalist, every Wednesday.

‘Socialism didn’t work anywhere on Earth in the last hundred years. Why should it work on Mars?’

In June, SpaceX went public in the largest IPO in history. Three days earlier, a German historian published a book explaining why that moment had been 60 years in the making.

This week on The Capitalist, I sat down with Rainer Zitelmann to discuss ‘New Space Capitalism’, his account of how private enterprise took over the final frontier. We also discussed how SpaceX cut launch costs by 95%, why the space shuttle was a fiasco, what cost-plus contracting does to a defence budget and who will own the land beneath the first city on Mars.

Zitelmann argues that space is the one industry where the world has moved decisively towards markets rather than away from them – which makes it the clearest available demonstration of what capitalism can do. Of 324 rocket launches worldwide last year, 165 were SpaceX’s; if the company were a country it would rank first, well ahead of China. But he also warns that the next stage will stall unless someone settles the question the Outer Space Treaty left open in 1967: whether private companies and individuals can own property beyond Earth.

Below, you’ll find some short excerpts from our conversation.

Marc Sidwell
Editor, CapX

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How SpaceX cut launch costs by 95%:

‘If you compare the launch costs of the space shuttle with SpaceX’s internal cost today for the Falcon 9, they have reduced it by 95%. There are a lot of reasons, but one is that they were the first to build a genuinely reusable rocket. It makes a difference whether you use a rocket once and throw it away, or whether you can use it several times – Musk has now used one Falcon 9 booster 36 times, and he will use it more. Think about aircraft. If I fly to London next time, it would cost seven or eight hundred thousand euros if they threw the plane away afterwards. No one else can do this today, with one exception: Jeff Bezos and Blue Origin. No government-led space agency – not in Russia, not in China, not in Europe, not in the United States – is able to do it. This year’s Artemis II rocket cost $4 billion, for a single use.’

On cost-plus contracts:

‘Even at the time of the first Moon landing, NASA didn’t build the rockets itself – private companies did. But the basis of the co-operation was completely different. It was so-called cost-plus contracts: the company had to show its costs, say $1 billion, and then add a profit of, say, 10%. Which means more cost, more profit. With $1 billion of costs you make $100 million; with $3 billion of costs you make $300 million. It was an incentive to increase costs. I spoke to one senior figure who worked for a contractor in those years and he told me: our best product was our overhead. Musk works on a totally different basis. He doesn’t sell NASA his rockets – they belong to him. He sells a service, like FedEx or UPS: I bring you something from A to B and I charge you this much. So if he reduces his costs, he increases his profit. It is exactly the opposite of what came before, so it comes as no surprise that costs are lower.’

The space shuttle’s record:

‘The space shuttle was a total disaster. They based their calculations on 140 flights every year; in the end it was 135 flights in 30 years. They calculated costs of about $10 million per flight; in the end it was more than $1 billion. Then there were two accidents, 14 astronauts died, and it was ended in 2011. The chapter heading in my book is “The end of the future”, because from that point the United States was no longer able to send its own astronauts from American soil on American rockets to the International Space Station. They had to rely on the Russians and old-fashioned Soyuz rockets.’

On NASA’s ‘Hail Mary’ bet on SpaceX:

‘Some people inside NASA called it the Hail Mary move – you know it from football: when nothing else is working, you try something that fails almost every time. They gave a little money to SpaceX. By a little I mean half a billion dollars, which sounds like a lot, but set against a Moon landing that cost around $300 billion in today’s money it was not so much. Most politicians, and plenty of people inside NASA, didn’t believe in it. The woman in charge of the co-operation with SpaceX reported that every week a colleague would come into her office and say: “I’m so sad for you that you have to work with this idiot. I don’t want to be in your shoes.” They didn’t believe in it. But it worked.’

Why Mars needs private property:

‘According to the Outer Space Treaty of 1967, countries are prohibited from claiming ownership of celestial bodies or of land on them. I have no problem with that where states are concerned – I think it’s not a bad idea. But how does it stand with private companies, with private individuals? There is nothing in the treaty, because in the 1960s almost nobody could imagine that some decades later there would be people like Elon Musk or Jeff Bezos. Now there is a legal dispute among space lawyers about whether private ownership is allowed. It has to be allowed. You cannot settle a million people – not even thousands – without private property, because that means socialism. Socialism didn’t work anywhere on Earth in the last hundred years. Why should it work on Mars? Why should it work on the Moon?’

Can space make the case for markets?:

‘The problem with people who are pro-capitalism is that their arguments are sometimes too abstract. It’s theory – here is a Hayek quote, here is a Mises quote, imagine an island and voluntary exchange. If you make it more concrete and ask why the government failed and why private enterprise was so much more successful, and you have a real example like space, that is a better way to convince people. We have so many left-leaning teenagers today. As a teenager I was fascinated by space – I was 12 at the time of the Moon landing, and I even produced my own newspaper. If children are fascinated by space and then by capitalism, that can make a huge difference.’

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Shadow Work and Pensions Secretary Helen Whately says the path to a stronger economy runs through work, not welfare – and the country cannot afford a government too timid to make that case.

Each week we bring you Despatch – an example of the best writing from CapX, read aloud. For hosted conversations, listen to The Capitalist, every Wednesday.