Blog — Institute of Economic Affairs

How the state tried to eliminate slums – and created even worse ones

Maeve Halligan — Wed, 04 Nov 2026 11:06:49 +0000

Rainer Zitelmann holds doctorates in history and sociology. He is the author of 32 books, translated into 35 languages, including The Power of Capitalism, How Nations Escape Poverty and New Space Capitalism. His writing has appeared in the Wall Street Journal, Financial Times, The Times and Newsweek, among others.

In Europe, there is a widespread misconception that the United States is a country of “pure capitalism” and that there is no such thing as an American welfare state. This perception is fundamentally wrong, and anyone who holds it will be surprised by much of what follows.

There are 100 federal programmes in the US alone that each distribute more than $100m a year, plus countless programmes at state and local level, as former US Senator Phil Gramm and economists Robert Ekelund and John Early write in their excellent book The Myth of American Inequality.^[1]

At the same time, there are federal, state and local taxes, resulting in an unmanageable tangle of tax payments on the one hand and transfer payments on the other. The absurd result is that the typical middle-class household receives almost as much in government transfer payments ($17,850) as it pays in taxes ($19,314).^[2]

Of course, the bureaucracy that runs all of this swallows up a massive amount of money. Many middle-class Americans sense that there is something wrong with the system, which is largely financed by the top 20 per cent of income earners, who have an average household income of $295,904 but pay taxes of almost $107,000.^[3] This refutes the popular belief that America’s top earners get off lightly when it comes to paying taxes.

No. More than one in every three dollars earned by these households ends up in the government’s coffers. And the top 20 per cent of households pay more than 60 per cent of all taxes. If you look at federal income taxes alone, the top 20 per cent pay 83 per cent of the total income tax bill!^[4]

So, the system fleeces higher earners and discourages the middle class by removing any financial incentive to work.

And perhaps the most absurd aspect of all this is that it has done little to help people escape poverty on their own. Since the “War on Poverty” began in the US in the mid-1960s, with government programmes constantly ballooning in size and scope, the share of Americans unable to support themselves without government help has barely changed. In the two decades before the “War on Poverty” began, poverty in the US had steadily declined from 32.1 per cent to 14.7 per cent.^[5]

One of the welfare state’s favourite areas of intervention in every country is housing construction and housing assistance for people on lower incomes. This is the subject of Howard A. Husock’s 2025 book, The Projects: A New History of Public Housing.

Today, no fewer than 1.6 million Americans live in 886,000 public housing units.^[6]There used to be far more: between 1937 and the mid-1980s, 1.5 million units were built in the “Projects”, most of them (1 million) between 1950 and 1976.^[7] Today, a total of 6.7 million Americans live either in Projects or in a “voucher household”.^[8]

Hundreds of thousands of these units have, however, been demolished over the past decades. Today, the Projects are socially troubled areas with high levels of crime. “An analysis of New York police data has found that although residents of public housing make up only 4 percent of New York City’s population, an estimated 20 percent of violent crime, prominently shootings, occur within one hundred feet of public housing.”^[9]

The residents of the Projects are poor: only 3 per cent of tenants are married couples with children, and the proportion of Black residents, at 42 per cent, is more than three times as high as in the population as a whole.^[10]

Lee Rainwater, a Harvard sociologist who studied the Pruitt-Igoe project in St Louis, quoted residents in his study based on interviews: “There’s too much broken glass and trash outside. The elevators are dangerous. The elevators don’t stop at every floor, so many people have to walk up or down to get to their apartments. There are mice and cockroaches in the building.” Violence and vandalism were commonplace.^[11]

Yet it had all begun very differently. The Projects were intended to realise utopian concepts of better housing: it was no longer the market but government planning and administration that would determine how people lived.

According to the author, it all began as early as 1934 with the “Housing Exhibition of the City of New York” in the city’s Museum of Modern Art. In a book published for the occasion, America Can’t Have Housing, the authors made clear that this was not merely about new architecture and housing: “It discusses the radical changes which must be made in our social philosophy and public policy in order to improve the housing condition of the masses of the American people.”^[12]

The central thesis was that the market had failed when it came to housing.^[13] The volume accompanying the exhibition stated: “Nowhere has laissez-faire failed more dismally than in the field of shelter for the low-income groups. A national housing policy will not make much progress with us until it is generally conceded that housing for these groups never has been and never will be produced for profit.”^[14]

The proponents of these ideas agreed that the market had failed in the housing sector. One of the most important initiators, Catherine Bauer, played a central role in bringing about the Housing Act of 1937 and was affectionately referred to as “Communist Catherine”. Another, Philip Johnson, admired Adolf Hitler, attended the Nazi Party rally in Nuremberg and supported the antisemitic radio preacher Father Coughlin.^[15]

Bauer wrote: “Modern housing means complete new communities planned entirely from the point of view of fullest usefulness and long-time amenity – instead of chaotic subdivision and the erection of dwellings designed only to bring quick speculative profits. It means that rentals must be geared to the capacity to pay and not to the ‘market’.”^[16] Her book Modern Housing was illustrated with photographs of European projects, including examples from Hitler’s Germany and Stalin’s Soviet Union.^[17]

The visionaries were without exception intellectuals who believed that a perfect society and perfect housing could be planned at a desk, with their own aesthetic sensibilities serving as the guiding principle. It never occurred to them to involve the people for whom the Projects were intended. “Bauer et al would be the ones choosing the architects, the locations, and the modernist housing style. It is hard to see the process as anything else but one of elites – of different social class and even religion – deciding how the working class was meant to live.”^[18]

It was not voters or builders who had demanded the concept of the Projects, but “essayists and ambitious architects”.^[19]The conviction they all shared was that capitalism had failed in the housing sector and that “a marriage between government and modernist architects and planners could create a new and better kind of city, one that would uplift its residents in campus-style oases of towers set in parks”.^[20]

Le Corbusier, one of the most influential intellectual pioneers of the new movement, described the city of the future in his 1924 book Urbanisme, first published in English in 1929 as The City of Tomorrow. It was a city in which “the plan must rule”, with everything organised by the state and designed by architects who followed his vision.^[21]

This way of thinking is typical of the constructivism repeatedly criticised by Friedrich August von Hayek, namely the idea that a society and its economic order can be consciously shaped according to a rationally devised plan. Hayek criticised this pretence of knowledge because no individual and no central planning authority possesses the dispersed knowledge of millions of people that would be necessary to manage a complex society.

Many successful institutions, such as the market, law or language, are not the result of conscious planning but have developed through a long evolutionary process without anyone having centrally designed them.

The prerequisite for creating something entirely new and utopian was, of course, the elimination – indeed, the violent and brutal elimination – of everything that had developed organically. This applied in particular to the structures referred to as “slums”.

They had to make way even when their residents resisted and when there was not enough room in the Projects that replaced them to accommodate everyone. Time and again, residents resisted having their homes razed to the ground and being forced to move into the new Projects.^[22] In some cases, for example in Detroit, votes were held on whether the neighbourhoods should be destroyed, but opponents won more often than supporters.^[23]

Indeed, living conditions in many of the neighbourhoods described as slums were terrible: overcrowded, dark and a reflection of social problems. But they could also be described more positively as spontaneously evolved social structures populated by hardworking immigrants and small-business owners.

The author writes about one neighbourhood in New York: “Theirs was an unplanned, chaotic and spontaneous place, certainly with flaws. Yet it is hard to be at all certain that residents and business owners would, if asked, through translators, have agreed to be relocated to a high-rise tower set in a ‘park’ without any cross streets and all without any stores or businesses. They were certainly not surveyed as to their opinions.”^[24]

So-called “slum clearance” meant the violent destruction of spontaneously evolved structures, usually without consulting the tenants and owners whose property was expropriated. And it was not just housing that was affected. In one of the demolished slums, in addition to more than 10,000 dwellings, there were 137 food stores, 118 bars and restaurants, 86 barber shops and beauty parlours, 80 churches and missions, 24 dry cleaners and 6 funeral homes.^[25]

Yes, the slums were overcrowded and much was wrong with them. “But they teemed with life: with apartments above stores, with churches and synagogues, and newspapers and barber shops. They buzzed with what we call civil society: the social clubs and charitable groups born through the efforts of residents and neighbors.” Since most slums were predominantly inhabited by Black Americans, resistance emerged under the slogan “Slum clearance is Negro clearance”.^[26]

What replaced the demolished slums initially seemed better. In the early years, when the developments were new, they were usually clean and attractive, and many residents enjoyed living there. But their character changed increasingly over time. Originally conceived for working-class families on average incomes, they increasingly became poorhouses and centres of social problems.

The rents were insufficient to cover maintenance. Government administration was hopelessly overwhelmed and incapable, and the problems grew worse year after year. Bauer, the most prominent intellectual pioneer of the housing and social programme known as the Projects, eventually acknowledged its failure herself: “Life in the usual public housing project just is not the way most American families want to live. Nor does it reflect our accepted values as to the way people should live.”^[27]

In 1973, the then US President Richard Nixon stated: “Leaders of all political persuasions and from all levels of government have given a great deal of thought in recent years to the problem of low-income housing. Many of them agree that the federally subsidized housing approach has failed.”^[28]

In many respects, the new ghettos were even worse than the old ones. “In the projects, there were, by design, no locally owned businesses or commercial streets. No extra income could be (legally) realized by renting a room to someone who might otherwise be without shelter.”^[29] There was no longer any private home ownership here; renting was the only option.

The Projects were intended to replace the slums, but in reality, after their promising beginnings, they themselves became slums, often worse than those that had been demolished to make way for them. Following Nixon’s moratorium in 1973, other concepts increasingly came to the fore. Hundreds of thousands of units were demolished, and the new fashion was “mixed communities”, which sounded good on paper but did not correspond to what many Americans wanted.

The voucher system also creates perverse incentives, since rent is calculated as a percentage of income. This means that as income rises, tenants have to pay higher rents, leaving many residents with little motivation to earn more. Maintaining the completely run-down Projects was often even more expensive (per square metre) than building a new average-sized house.^[30]

The problems of government-organised housing were similar to those in East Germany. In 1989, when East Germany was nearing its end, 65 per cent of all homes – including the 3.2 million built after the war – were still heated by coal stoves.

Twenty-four per cent had no private toilet and 18 per cent had no bathroom. The provision of lifts, balconies and modern kitchens was even more limited. Forty per cent of blocks of flats were considered severely damaged, and 11 per cent were completely uninhabitable.

The author shows that one government-run system was replaced by another, but the new ideas failed as well. What remained unquestioned was the constructivist and statist approach, according to which the market had supposedly failed in the housing sector and government concepts and plans, often devised by well-meaning intellectuals, were therefore the solution.

References:

^[1]Phil Gramm, Robert Ekelund and John Early, The Myth of American Inequality: How Government Biases Policy Debate (Rowman & Littlefield, 2022), p. 14.

^[2]Gramm, Ekelund and Early, The Myth of American Inequality, p. 29.

^[3]Gramm, Ekelund and Early, The Myth of American Inequality, p. 29.

^[4]Gramm, Ekelund and Early, The Myth of American Inequality, p. 26.

^[5]Gramm, Ekelund and Early, The Myth of American Inequality, p. 35.

^[6]Howard A. Husock, The Projects: A New History of Public Housing (New York University Press, 2025), p. 4.

^[7]Husock, The Projects, p. 37.

^[8]Husock, The Projects, p. 146.

^[9]Husock, The Projects, p. 1.

^[10]Husock, The Projects, p. 1.

^[11]Husock, The Projects, p. 106.

^[12]Quoted in Husock, The Projects, p. 11.

^[13]Husock, The Projects, p. 19.

^[14]Quoted in Husock, The Projects, p. 19.

^[15]Husock, The Projects, p. 40.

^[16]Quoted in Husock, The Projects, p. 28.

^[17]Husock, The Projects, p. 34.

^[18]Husock, The Projects, p. 65.

^[19]Husock, The Projects, p. 7.

^[20]Husock, The Projects, p. 15.

^[21]Quoted in Husock, The Projects, p. 27.

^[22]Husock, The Projects, p. 49.

^[23]Husock, The Projects, pp. 92–93.

^[24]Husock, The Projects, p. 64.

^[25]Husock, The Projects, p. 79.

^[26]Husock, The Projects, p. 94.

^[27]Quoted in Husock, The Projects, p. 114.

^[28]Quoted in Husock, The Projects, p. 105.

^[29]Husock, The Projects, p. 99.

^[30]Husock, The Projects, p. 171.

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Britain spends more on planning applications than Japan spends on extending high-speed railways through earthquake-prone mountains.

iealondon — Mon, 24 Aug 2026 10:09:09 +0000

Britain builds high-speed rail at almost six times the cost of Japan, new IEA analysis finds

Every French city with a population above 150,000 has a tram, light-rail or metro system, while around 30 British towns and cities of comparable size have none

New research from the Institute of Economic Affairs reveals the true scale of Britain’s infrastructure crisis.

New research from the Institute of Economic Affairs (IEA) reveals the true scale of Britain’s infrastructure crisis, showing that the UK pays several times more than its European and Asian peers to build major transport infrastructure, and waits far longer for it to open.

The analysis, written by Valentin Boboc, finds that HS2 Phase 1 has cost roughly £470 million per route-kilometre, making it the most expensive high-speed railway in any international database. By comparison, Japan’s Shinkansen extensions through the seismically active Japanese Alps cost between £50 million and £100 million per kilometre, whilst the European average for comparable projects is roughly £25 to £32 million per kilometre.

This disparity is not due to geography or labour costs. Japan’s labour costs are similar to the UK’s, its land is scarcer, and its terrain is more challenging, yet it builds high-speed rail more efficiently and at lower cost. British Nationally Significant Infrastructure Projects typically take nine to seventeen years from inception to opening, compared to three to six years in Japan.

Among the report’s key findings:

Britain faces an urban connectivity deficit. All French cities with populations over 150,000 have a tram, light-rail, or metro system, while about 30 similarly sized British towns and cities lack such infrastructure. In Marseille, 87% of residents can reach the city centre by public transport within 30 minutes, compared to 38% in Leeds.

The costs of inaction are significant. Cancelling HS2’s Birmingham to Manchester leg has left underdeveloped links between the West Midlands and the North West for at least a generation, with estimated annual foregone benefits to Greater Manchester alone ranging from £0.6 billion to £1.3 billion.

The construction sector lacks innovation. UK construction productivity declined by an average of 0.6% per year between 1997 and 2019, compared to 2.8% growth for the whole economy and 3.9% for manufacturing

Even projects that pass the planning stage often fail. Since 1991, Leeds has spent over £70 million attempting to build a mass transit system, yet no track has been laid. A third attempt is underway, with first services not expected until the late 2030s, resulting in a 45-year gap between the original proposal and delivery.

The report sets out a series of reforms drawn from international experience, including devolving infrastructure powers and funding to combined-authority mayors, replacing discretionary planning with clear rules that enable development by right, narrowing the grounds for judicial review of infrastructure decisions, opening procurement to international competition and reforming compensation law to allow land value capture around new transport links, following the model used by Hong Kong’s MTR and Tokyo’s private railways.

This briefing is part of a series published by the IEA on Britain’s ‘Great Stagnation’, diagnosing Britain’s growth problem. The next briefings in the series will be published in the coming weeks and will be compiled into a full book published in September.

Valentin Boboc, author of the report, said:

“Britain has an institutional problem when it comes to building infrastructure. We spend as much as our neighbours on infrastructure projects and get a fraction of what they get for it, because nobody in the system faces hard budget constraints, whilst the planning system gives asymmetric power to blockers over builders. Leeds has been trying to build a tram network since 1991 and still has nothing to show for it, largely because our planning and procurement rules do not reward delivery according to commercial incentives.”

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The Great Stagnation Briefing 5: Tax

iealondon — Fri, 21 Aug 2026 08:38:53 +0000

Summary

Over the past quarter-century, as the tax burden has risen, so too has the structure of the tax system become markedly worse. The level of tax and structure of the tax system did not create the UK’s post-2008 growth slowdown, but they has made recovery much harder.

Although headline rates of income tax have not increased dramatically, the effects of fiscal drag mean that more people pay higher rates. In 1990 just 3.5% of adults paid higher rates of income tax, by 2010 this had increased to 8.5% and it is projected to rise to 14% by 2027. At the same time hundreds of thousands of people have been sucked into the ‘60p tax trap’ created by the withdrawal of the personal allowance from those earning over £100,000.

While the burden of income tax on above-average earners has increased the share of revenue attributable to consumption taxes (such as VAT and excise duties) has fallen from 28 to 22.5% between 2000 and 2024. Economic evidence suggests that taxing income is more detrimental to economic growth than taxing consumption.

After both great economic shocks Britain has faced in the 21st century, the 2008 Global Financial Crisis and Covid, governments responded by sharply raising taxes on investment. This result has been lower business investment and capital accumulation with predictable results for productivity growth.

Britain raises more in property taxes as a proportion of GDP than any other country in the OECD. While well-designed property taxes are generally less damaging than taxes on investment or income, the UK’s property tax system is extremely poorly designed. Stamp duty is a particularly harmful, inhibiting both housebuilding and labour mobility.

As Britain’s tax burden is expected to rise to a post-war high by the end of the decade the flaws in the structure of the tax system will likely become a more biting constraint on future growth than they have been over the last two decades.

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Never forgetting the absurdities of fascism

iealondon — Tue, 20 Jan 2026 11:22:11 +0000

‘Classics Revisited’ revisits a publication from a previous century from a present-day perspective, to show how much, or how little, has changed.

Salomon Perel (1925 – 2023) was a German Jew who survived the Holocaust in the most implausible way imaginable: by hiding his Jewish identity, joining a Wehrmacht unit on the Eastern front, and then enrolling in a boarding school run by the Hitler Youth. Decades later, he told his story in this book. There is an English translation too, as well as a movie based on it.

Perel was born in Peine, Lower Saxony, in 1925. The Perels were originally from Russia, but emigrated after the October Revolution, as part of a larger wave. They open a small business in Peine, which soon thrives, and Salomon, his two older brothers and his younger sister spend an untroubled childhood there. “At the time, our German neighbours were not hostile towards us”, he recalls. The only resentment the family experiences comes from the already settled Jewish population, who are not keen on Ostjuden, the recent, much poorer newcomers from the East.

Things do not immediately change in 1933. Salomon’s father is convinced that “that crazy guy” will be gone within a few weeks – not an unreasonable assumption, given the pace at which the Weimar Republic was burning through Reich Chancellors. (Hitler’s immediate predecessor, Kurt von Schleicher, had lasted less than two months.)

The Nuremberg Race Laws of 1935 mark a turning point. The noose begins to tighten. The Perels emigrate again, this time to Łódź, Poland, which young Salomon is not happy about. The Nazi regime may not see him as a German, but Salomon himself very much does, and so do his peers in the new city, who initially reject him. Just as he masters the Polish language and gains a foothold, the regime the Perels were trying to get away from catches up with them. Łódź becomes Litzmannstadt (after the Nazi politician Karl Litzmann), and the city’s Jewish population is forced into a Ghetto.

The Perel parents urge their children to flee to the Soviet-occupied part of Poland, which they promptly do. They get separated along the way, and Salomon ends up in an orphanage in the former East of Poland, which has just become the West of the Soviet Union. It is not exactly a welcoming environment either, especially when they find out that he is the son of business owners, and thus part of the (petit) bourgeoisie. But he gets a respite of relative safety. Until Operation Barbarossa turns the entire region into a hellscape, and Salomon has to flee again.

He tries to outrun the advancing Wehrmacht, but this time, there is no escaping them. As he is captured, he rapidly destroys his papers, and, following a sudden intuition, he makes up a new identity on the spot. He tells his captors that he is a Volksdeutscher (ethnic German) from Lithuania, orphaned at a young age, with no papers, and no known surviving relatives. He obviously cannot call himself “Salomon”, so he adopts the inoffensive name “Josef”, and the Jewish-sounding “Perel” becomes “Perjell”. Incredibly, they believe him, and he stays with the unit as a translator.

He faces a few practical difficulties in his new surroundings. For a start, he has to hide the fact that he is circumcised, which is not as easy as it sounds under the circumstances, because they do not exactly get single room accommodation at the Hilton Hotel. He also has to be careful not to say the wrong thing.

Nonetheless – in a way, he settles in. He is by far the youngest “member” of the unit, and the soldiers develop a certain affection for him. “Josef” soon becomes “Jupp” (an informal shortened version), and “Jupp” becomes something like a mascot for the troop.

On his part, it is not all an act. At first, Perel describes his position as that of an infiltrator (albeit an involuntary one) among enemies. But his relationship with the men around him changes. It becomes complicated, and conflicted. He likes them individually, but hates them in the abstract. Or, in his own words, describing his departure:

“I had to leave behind the men that I had closely attached myself to. Due to their warm-hearted nature which they displayed towards me, I had learned to like them, but inwardly I hated and feared them, because they were Wehrmacht soldiers, and they were committing crimes.” [Translations KN]

He later remains in contact with them by letter:

“I wanted to receive news from them, to find out who had fallen on the battlefield. I felt a strong need to remain, in some way, in contact with these men, even though they should have been my mortal enemies; we had been bound together by the threads of a shared fate. […] I hated this regime and utterly rejected it, but I retained my affection for these men.”

Since Perel is still a minor, he cannot stay at the front. He is sent to a Hitler Youth boarding school in Braunschweig, Lower Saxony, which happens to be just around the corner from his original hometown. (Although he cannot tell anyone about that, and he certainly cannot visit people who might remember him from his previous life.)

To the extent that that is possible under the circumstances, he has a good start at the school. Many of the boys admire him, because they see him as a minor war veteran. He stands out with his black hair, but people put that down to his semi-exotic status as an “East Baltic German”.

Like in the army before, he initially feels like an involuntary infiltrator on enemy territory, but it does not stay that way. He settles in, and makes unlikely friendships. Ironically, one of most fanatical Nazis he meets, Otto, becomes one of his closest friends.

He now has to learn Nazi propaganda at school, which does not leave him entirely unaffected:

“I, too, felt myself gradually becoming entangled in the snares of this depraved “science,” at least in some aspects. It made sense to me that a superior people had a right to supremacy […]

The fact that I indulged in this ideology aroused neither doubt nor surprise in me. Salomon increasingly faded from Jupp’s memory.”

As the tables turn at the front, the regime’s war propaganda continues to insist that the Endsieg (final victory) is guaranteed. Until very late in the day, Salomon/Jupp believes it too:

“The changed circumstances didn’t unsettle me either. I was deeply entangled in this world imposed upon me, and things had completely numbed my mind. My consciousness was so clouded that no ray of reality penetrated it. I continued to feel like “one of them.””

It all comes crashing down in April 1945, when Braunschweig area is occupied by American troops. His school is closed down, the Hitler Youth dissolved, and their insignia confiscated. Perel feels relief, but no sense of triumph:

“I had left the vanquished, but I was not one of the victors. A bitter, unique situation.”

It is only at this point that he finds out about the Holocaust. He enquires about the whereabouts of his family, and learns that his parents and his sister did not survive. His brothers, however, have, and he is reunited with them in the end.

Ich war Hitlerjunge Salomon can be read at multiple levels: as a historical eyewitness account, as a case study in human psychology under extreme conditions, or as a case study on how people behave under totalitarian regimes, among others. It is not supposed to be a political book per se, but Perel’s story, in and of itself, highlights some of the absurdities of fascist ideology, and of totalitarian collectivism more broadly. In a “blind test”, neither the Wehrmacht nor the Hitler Youth see Salomon as in any way different from the rest of them, readily accepting him as one of their own. The most fanatical Nazis Salomon meets are the ones who like him the most; the only person who ever suspects that he is not what he claims to be is a woman who is not at all on board with Nazi ideology.

In the 1990s, a much older Salomon Perel went on lecture tours through Germany. He spoke at my school in 1995, which is how I got my copy of Ich war Hitlerjunge Salomon: it must have been the first book on the Third Reich I ever read (or certainly the first one I ever read voluntary, as opposed to a school assignment). I stumbled across it again at my parents’ house just over the Christmas break, 30 years later.

Had I rediscovered it a little earlier than that, it would probably not have occurred to me to review it for the IEA blog, because I would have seen it as a purely historical account without much contemporary relevance. But at a time when some social media influencers are openly toying with fascist ideology, sometimes gaining hundreds of thousands of followers on that basis, there is a lot to be said for revisiting accounts like this one.

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The days after dictatorship

iealondon — Mon, 12 Jan 2026 11:14:35 +0000

Dr. Paola Romero teaches philosophy at the London School of Economics.

As I write this, a number of political prisoners have been released in Venezuela. The unofficial list shows Jesús Armas, a former Institute of Economic Affairs intern, who was captured by Maduro’s police, short after Venezuela’s presidential election in July 2024. I hope that by the time you read this, Jesús will be reunited with his family.

Events have been unfolding rapidly in Venezuela since the capture of Maduro on 3 January by the ‘Operation Absolute Resolve’ of the United States. Does the welcoming yet piecemeal liberation of political prisoners give us hope that a comprehensive transition to the rule of law is in sight? Too early to tell. What I do venture to speculate is that, what we have in front of us is a radical reversal of a post-war liberal paradigm. This paradigm was based on the idea that principles come before material conditions, that legitimacy ought to be a precondition for all other considerations. But just like Marx did to Hegel, the US strategy in Venezuela is putting this paradigm on its head: first, the strategic control of economic interests, then transition, and only then, legitimacy. Is this really as radical and ‘immoral’ as it sounds?

The progressive paternalists out there, who have been selectively ignorant of our humanitarian crisis until Maduro’s extraction, seem to be waking up from their dogmatic slumber. Offended by the suggestion that strip-naked economic interests can ever fuel, as an unintended consequence, political stability and the re-establishment of minimal constitutional rights, they tell us that we should condemn the extraction of Maduro and the US’s imperialism. What they seem to miss is that it was ‘our own people’ in power for 27 years who have systematically looted our national resources, destroyed our oil industry, and shattered the fabric of society. We were subjects to locally bred masters, exploited with our own resources, invigilated, controlled, incarcerated, and tortured by Venezuelan police with the aid of Cuban intelligence. It is from this unique ‘lived experience’ that Venezuelans are judging, with contradictions, for sure, with serious and justified worries, no doubt, the present events. Yet, for some reason, we seem to feel a case of epistemic injustice when we are told that we cannot rejoice in seeing Maduro and his wife face justice. We exhausted all possible democratic and non-violent means to bring down a dictatorship without force. This was and is the crux of our existential dilemma, our historical conundrum.

It is against this form of paternalistic mentality, that I would like to set a couple of things straight:

“They are taking our oil”

The idea that the US ‘is only in for the oil’ should be unpacked. Yes, Trump is carving a new world order, on the assumption that America has to recover and oversee control over the Hemisphere. Yet, the idea that Venezuela was an independent, sovereign country, and that the Americans are coming in to take what is ours, is wrong: Venezuela has been invaded and controlled by foreign interests for two decades. China is the major beneficiary of our oil and most importantly, of our rare earth minerals, essential for the AI race. Loans have been the fuel of Venezuela’s toxic relationship with the Chinese Communist Party: the more oil we gave them, the more we owed them. Cuba has systematically infiltrated our military ranks, to such an extent that 32 Cuban soldiers died in the Maduro extraction operation – they were the only ones he could trust. When the US says that they are going to get back the oil Venezuela took from them, they are referring to the debt Venezuela owes to American oil companies, due to the mismanagement on the part of ‘Chavismo’ of the oil industry. Let’s recall that after the 2002-2003 general strike of the state-owned PDVSA, Chávez fired all the engineers, scientist and top-notch oil experts on ideological grounds, suddenly replaced by party cronies. Little did they know that our oil was not black gold but a dense and complicated affair to manage. The idea that we are little lambs and the wolf is coming to take what is ours, is disingenuous and factually wrong: it was Chávez, and then Maduro and his followers, who looted our national wealth.

Does this mean Americans won’t do the same? That is to be seen. Secretary Rubio insist on a three-stage plan, of which reactivating the oil industry is the first stage. Before the catastrophic collapse of our oil industry, America paid well, timely and in cash. That paid for the public university I went to, the roads we drive on and the preferential oil-dollars that paid for my Masters in the UK. We are the product of those golden years of high oil prices. In short, there is nothing morally wrong or politically evil about the fact that we have, and will keep living from selling our oil to the world. The problem is that Chavismo, having for a decade the highest ever oil revenues in our modern history, decided to put it in their pockets.

Is this only a temporary American tutelage?

Venezuela has historically been a state-driven, oil-centred economy. As much as I would personally like for the oil industry to be privatised and to abandon the welfarist mentality that I grew up with, a country in shatters (both institutionally and economically) like ours will need to depend on our basic resources and invest them wisely. However, Trump has said that it is the Americans who will administer our oil industry for now. Are we happy with this form of American economic tutelage?

No.

This is why Venezuelans, especially those of us outside the country, who can speak freely without our physical integrity being at risk, alongside those courageous Venezuelans back home, are pressing the US to align their economic interest with our political vocation. The revenues from our resources should be managed by elected and competent Venezuelans in the context of the rule of law. This is the challenge that the extraction of Maduro and a Chavismo-led transition presents. Are we heading, step by step, to a more stable and legitimate political system? Can sovereign governance and the US’s economic interest be made compatible? Is democracy at the end of this 3-stage plan? I cannot answer that right now.

The dictator is gone, but his allies are running the transition

The US has bet on giving Chavismo a “chance”, after the extraction of Maduro. For many Venezuelans, this has been a bitter pill to swallow. Trump was mistaken when he said, minutes after Maduro was on his way to New York, that opposition leader María Corina Machado, did “not have the support of the people”. However, would María Corina have been the right person to lead a transition, when the rest of the regime is still holding the de facto power? I can already hear the cries calling her a Trump puppet. For the moment, that servile puppet is, instead, Delcy Rodríguez, a once fervent anti-imperialist who, in less than 48 hours talks has started speaking of ‘strategic cooperation with the United States for the sake of peace and regional stability’.

Venezuela for the Venezuelans?

The challenge right now is that the democratic will of the people does not seem to be a currency with enough value to secure us a place at the negotiating table. At least for the time being, we Venezuelans, the civil society, the democratic opposition, have been left out of the political fight between the two powers, the US and the de facto regime. Partly because our political leaders are either in prison, in hiding or in exile. Partly because the US wanted to guarantee there wouldn’t be military coups following the extraction (for that, they needed to keep parts of the regime in place), partly because Trump personally doesn’t trust the opposition at this very moment and given the high stakes, to be capable of governing. The political value of Venezuela’s civil society longing for good governance is a ‘weak’ currency in the face of realpolitik. Can that change?

My hunch:

Will the Chavismo-led transition stay for long? How long will America’s tutelage last? Can Chavismo’s long-held hatred of the US be redressed? I have an instinct, a hunch, that the Chavistas will ultimately not behave the way the Americans want them to.

Am I worried? I am cautiously optimistic. I don’t care if America has good intentions or not regarding Venezuela: they have economic interest and we have legitimate political ambitions: the two can coexist together. The US needs some minimal political stability in Venezuela to guarantee its own economics plans. Those minimal conditions (rule of law, free and fair elections, competitive markets, the recovery of the oil industry, etc.) are, from the point of view of Venezuelans, conditions we haven’t had and have longed for, for 25 years.

The issue for us is to recover a minimal set of constitutional rights and to be masters of our own destiny. Venezuelans have been fighting for their freedom for years, alone, without arms, without resources. I trust that our time has come.

The post The days after dictatorship appeared first on Institute of Economic Affairs.

Britain’s failing economic ideas

iealondon — Thu, 08 Jan 2026 11:07:43 +0000

This week is my first as the new Director General of the IEA. It has turned out to be one dominated by overseas news – Venezuela, Greenland, NATO, Ukraine. I don’t need to comment on the substance of any of this for one point to be clear: the relatively marginal position of the UK in these great international events. Yes, we have committed to troops on the ground in Ukraine, though where those troops are going to come from, and for how long, is not entirely clear. We have signed a declaration on Greenland. And so far at least we haven’t plucked up the courage to say anything much on Venezuela.

For someone like me, who joined the Foreign Office in 1987 when the Reagan-Thatcher alliance bestrode the world stage, and reached its upper echelons at the time of the Bush-Blair partnership and the British involvement in Iraq and Afghanistan, this takes some adjusting to. Whatever one thinks of British foreign policy over this period, we at least counted for something. Sadly, that’s no longer true.

There are many reasons for this, but one very important one is relative economic decline. In the end a country’s ability to influence international events depends on its economy. A strong economy funds hard power. It is also an intangible asset. If your country seems to be doing well, and others want to imitate and learn from it, that also means they take you seriously. If you’re a superpower, a China, a US, even an India, then of course that doesn’t matter so much. But if you are in the mid-league, economic success matters. If you are relatively declining, if your model isn’t attractive to others, then you just don’t count for as much. Not only are your people poorer at home, your country is pushed around abroad too. Decline of all kinds becomes a habit and the learned impotence so visible in many of our elites in recent years becomes all too clear.

That is the position Britain- and indeed many European countries – has got itself into. For a long time the country has been living off the fat of the Thatcher and Major reforms. That was enough to carry us through most of the Blair years despite the poor policies of much of that period. Thereafter, the financial crash and all the really bad economic ideas that followed made things gradually worse until we reached the current point, one of virtually no growth per capita and a set of apparently unresolvable economic problems.

This fact does, finally, seem to be starting to sink into the political and economic debate. Although there is a “degrowth” movement, it doesn’t seem to have really taken root, and its more obvious manifestations such as a fanatical approach to net zero are being questioned as never before. But with one exception, the broader economic “offers” being put before the British people are still highly collectivist in nature and are not yet capable of dealing with the country’s real underlying problems.

The exception is of course the model which the IEA stands for: that of free markets and freedom. I’ll come back to that. But meanwhile what else is on offer?

The economic visions

Fantasy leftist

Well first there is the “fantasy leftist” model best represented by the Greens and Zack Polanski, but which reaches into the left of the Labour party and the media commentariat. Internationally the new Mayor of New York, Zohran Mamdani, stands for it too. It’s an economic approach based on ideas like modern monetary theory, the view that we can just print money to pay our bills, or the view that a wealth tax is a financial panacea to all our ills. It involves mass immigration, rent and price controls, free public transport, and state-run shops and restaurants. Eventually it will involve expropriation and state control over nearly everything to make it work – after a fashion. It may be cool, sexy, and fashionable for now – but look at Venezuela if you want to see where this ends up.

Blue Labour

Second there is what might be described, somewhat imprecisely but conveniently, as the “Blue Labour” model. This has an appeal beyond that particular (and relatively small) part of the Labour Party out to the communitarian voices in all parties. Trumpism, or maybe JD Vance-ism, picks up elements of it too. It involves a deliberate focus on reindustrialisation, on old-style union-management consultation, and on the strategic use of tariffs to build up industry and protect strategic interests. It emphasises national self-sufficiency and resilience, verging for some into war Keynesianism through boosted defence spending. It believes in nationalisation and, in Britain anyway, has a strong sentimental attachment to the world of Clem Attlee and even to the collectivism of the Second World War.

This model is perhaps not quite so damaging as fantasy leftism. It doesn’t have the same capacity to completely wreck a country and it does at least believe that a country is a meaningful thing. It doesn’t pretend that you can have something for nothing, and it does respond to genuine political currents and real needs. And to be fair it is often justified more on social cohesion than purely economic grounds. But still, it has been tried and has failed. Its main weaknesses are that it ignores all economic experience in important areas such as labour markets and international trade; it has only a subordinate place for markets in its thinking; and it sees government involvement as central to any important decisions on anything. Trying this is going back to the past not looking to the future.

Establishment economist

And finally there is what one might call the “establishment economist view”, the consensus view of the economy as held by most of those who staff government departments, the Bank, the OBR, and the big think tanks like the IFS and the Resolution Foundation. This view is so deeply embedded that it is often implicit rather than explicit in discussion. It might also be called “Brownism”, as it began to conquer the institutions while Gordon Brown was Chancellor – and indeed in many ways we are still living in Gordon Brown’s world.

Key elements of this philosophy are that Britain suffers from underinvestment and that an expanded public sector and ‘active state’, driven by higher taxation and / or public debt financing, is the best way of changing that. Its proponents believe that spending on R&D, education, and infrastructure will help improve Britain’s public capacity, and that public investment in public projects more broadly will boost innovation. It sees a role too for an explicit industrial strategy driven by parastate organisations like Great British Energy or the so-called National Wealth Fund. And it is very worried by questions like inequality or intergenerational friction, and thinks the government has a role in managing wages and prices to deliver a “correct” distribution of income across the whole economy.

All this can sound quite appealing if you don’t mind giving over large amounts of your money and personal autonomy to the government. Both are in short supply in the public sector in the first place, and perhaps this is why the model has proved so durable across establishment circles, though its need for expanded state power to make it work is surely also part of it.

The problem here is that it has simply not delivered. We have been operating on something like this model for the last couple of decades and the results are what we see around us. This approach gives relatively little space to market dynamism, spontaneous order, or organic innovation. It is self-aggrandising as the problems it generates can only be solved, in the minds of its proponents, by more government. Over time it discourages entrepreneurialism and creates incentives not to work, the resultant difficulties being solved by turning to mass immigration. And its advocates simply refuse to engage with issues like crowding out and the deadweight costs of vast public sector transfers.

Why these models matter

Because these models are all opposed in different ways to that of freedom and free markets they are often blurred together. In a way that is natural: they aren’t all exactly left-wing but they are all in different ways statist and collectivist. But I think it is important to distinguish them because the means to tackle them are also distinct.

The best remedy for fantasy leftism is ridicule: its exponents can rarely even explain it coherently, its intellectual underpinnings are weak in the first place, and where it has been tried the consequences have been disastrous. But the other two models need a different critique. Blue Labourism is based on a specific set of values and is best criticised on the basis of its actual track record where tried. And the establishment economist view is often not critiqued at all, being seen on many business pages as a set of obvious truths or “just the way things are”. It needs to be made visible and it then needs to be the subject of a serious intellectual assault from those who see things differently.

The correct way to improve this country’s prospects is of course different. It is to return to a policy of freedom and free markets, of lower tax and spend, of having confidence in individuals to spend their own money best, to return to trust in the power of incentives and of entrepreneurialism. That is what the IEA has stood for over 70 years. Criticising the bad ideas and supporting the good ones, winning the battle of ideas: that is what we have done successfully in the past, and will certainly carry on doing, now and into the future.

The post Britain’s failing economic ideas appeared first on Institute of Economic Affairs.

British ¡Afuera! #2 – Higher Education

iealondon — Tue, 06 Jan 2026 10:54:57 +0000

British ¡Afuera! is a new series of pieces applying the principles of the IEA’s ‘Sharper Axes, Lower Taxes’ and Argentinian ¡Afuera! to Britain today.

Read Kristian Niemietz’s introductory piece explaining the project here. Read part 1, on the NHS and national pay scales, here.

Paid Insider subscribers receive exclusive early access to this: part two, on higher education.

By Peter Ainsworth, author of ‘Shares in Students: a New Model for University Funding’

Higher education is a vital sector for Britain’s future: helping young people fulfil their potential, supporting social mobility, advancing research, and contributing to the country’s cultural and intellectual life. But it has been trapped inside a system of rigid, counterproductive central planning that suppresses academic freedom, delivers poor outcomes for students, and imposes a vast and growing cost on taxpayers.

Afuera would remove the state from defining degrees, fixing prices and underwriting failure. In doing so, it would restore genuine academic autonomy, enable institutions to focus on student success, and eliminate hundreds of billions of pounds of long-term public liabilities. This is not an argument for shrinking higher education, but for making it work.

Academics often complain that higher education has been “marketised”. Nothing could be further from the truth. In a market, producers set prices, bear risk, and are paid by customers. None of this applies to undergraduate education in England. Tuition fees are fixed by the state. Universities receive their income from the state upfront, before service delivery, insulating them from the financial risk of failing to deliver value to students. The customer pays the state, not the supplier. No one who has ever seen a real market would describe this system as one.

If you want to understand what has gone wrong in British higher education, think of a Soviet car plant. The inputs were excellent: steel, labour, engineering talent. The output was a vehicle worth less than the value of the materials that went into it. This was no anomaly, but the natural outcome of Marxist central planning. Planners and factory managers were rewarded for meeting targets and satisfying the plan, not for producing cars that consumers actually wanted – reliable, attractive, and fit for purpose.

The same logic now governs higher education. Students consistently ask for soft skills, employability and progress in the world of work. Much of higher education remains organised around teaching about things, rather than around forms of learning that develop competence through practice – learning by listening rather than learning by doing. Regulators, meanwhile, reward compliance with centrally defined outcome metrics, even as real-world graduate outcomes deteriorate.

A sector that ought to increase human capital has been engineered into one where many graduates earn less than non-graduates, and even more earn a negative return once time and loan costs are taken into account. Just as with the Lada, the value of the inputs exceeds the worth of the output – while the state looks for someone else to blame for the inevitable failure.

There is no alternative

‘The sector is now, de facto, a nationalised industry’

No path that leaves the present incentive structure intact is capable of making higher education economically worthwhile for most students while reducing losses for the taxpayer. Raising fees increases public loan losses; lowering them squeezes university finances – but neither alters how courses are designed or whether they generate labour-market value. Inflation-linked increases merely kick the can a few yards down the road. More regulation – whether through TEF or any other framework – changes the metrics universities optimise for, not the incentives that determine whether courses deliver employability or other qualities valued by students. The sector is now, de facto, a nationalised industry, characterised by rent-seeking behaviour, political lobbying, and weak incentives to deliver value for students or taxpayers.

The UK has seen and solved this problem before. Thatcher’s privatisations addressed industries with this exact pathology: centrally planned, loss-making, and structurally insulated from competition. The result was a transformation of, inter alia, British Airways, BT and electricity generation and supply, while bolstering the public finances.

Afuera proposes three structural reforms to eliminate the drain on the public purse, restore academic agency, and make higher education effective in improving life outcomes for students. None are conceptually complicated, but all require a dramatic mindshift away from the belief that regulation leads to productive decisions under conditions of uncertainty, and toward trust in free markets to generate meaningful price signals and allocate risk and responsibility.

1. Abolish the Office for Students

There is little evidence that the Office for Students’ regulatory regime has materially improved employability, educational quality, or value for money. What is clear is that the OfS imposes substantial compliance costs: sector estimates suggest universities now employ around 18 staff dedicated primarily to managing OfS requirements, diverting resources away from teaching, research and student support.

OfS regulation substitutes bureaucratic compliance for professional expertise. It attempts to define quality ex ante through metrics and process, rather than granting agency to academics and trusting them to exercise their own judgement and take responsibility for the value revealed through real-world outcomes.

In place of OfS micromanagement, the Independent Adjudicator should be given the power to make financial compensation awards where universities fail to deliver on their promises to students. This would align incentives directly: institutions would be free to innovate and differentiate but would bear real financial consequences for misrepresentation or under-delivery.

Accountability through liability would do more to protect students than ever-expanding regulation, at a fraction of the cost.

2. End state loans – universities to finance their own students.

In exchange for the right to use the title “university” and to hold degree-awarding powers, institutions should be required to accept deferred payment of fees from any applicant. If a university believes its courses will deliver a graduate premium, it should demonstrate that confidence by lending to its own students. FCA-regulated private-sector firms already exist to administer deferred-payment arrangements, allowing universities to bear risk without themselves becoming regulated lenders.

Once the state exits student lending, the case for political control of tuition fees collapses. Absent the government’s loan losses – estimated at around £8.6 billion per year on new loans, with a present value of roughly £100–200 billion – there is no case for price caps, and universities should be free to set fees as they see fit.

Some institutions, such as Oxbridge, may raise fees significantly. That would correct an existing unfairness: students currently pay the same price whether they attend a high-tariff or low-tariff institution. Lower-cost universities would benefit by becoming able to compete on price, offsetting lower prestige with affordability.

Fee freedom would also encourage course restructuring. Programmes with lower expected earnings could be delivered more cheaply, while courses with strong earnings potential could be fully funded. Universities would no longer be forced into a one-price-fits-all model divorced from economic reality.

By lending to their own students, universities would retain a long-term financial interest in graduate success, creating incentives to support graduates through career advice, skills updating and retraining where needed.

The transition would, however, create short-term cash-flow pressures for some institutions. To manage this, the government should provide time-limited loans to universities on commercial terms until cash flows normalise. Because these would be recoverable assets rather than subsidies, they would not worsen the public deficit.

3. Switch tax breaks from businesses to consumers

Universities are large commercial organisations that primarily deliver a private benefit to a subset of the population. As independent schools no longer enjoy special tax treatment, the rationale for granting universities preferential status has largely fallen away. Universities should lose charitable status, be subject to VAT, and pay full business rates.

Tax relief should instead be directed to graduates. Where individuals invest in their own human capital, there is a clear public interest in supporting that decision. Tuition fee repayments should be made tax deductible, aligning tax relief with the act of skill formation rather than with institutional lobbying.

This reform would remove distortionary tax advantages, end preferential treatment of institutions, improve local government finances and redirect support to individuals making productive investments in their own capabilities.

¡Afuera!

The current system is a century-old experiment in central planning, and it is failing exactly as central planning always fails: expensive to the taxpayer, destructive to value, and impervious to reform from within.

The solution is not to patch it, subsidise it, or redesign the bureaucracy. The solution is to end the model that created the problem.

Properly applied, an Afuera approach would eliminate the state’s exposure to student loan losses – saving plausibly in the order of £100 billion+ – while replacing a fragile, politics-dependent system with a genuinely competitive and well-resourced sector. Universities would be free to innovate, differentiate and invest, so long as they bear the consequences of their own decisions.

Let universities bear risk. Let them live by their outcomes. And let the taxpayer finally be free of an industry that has largely forgotten how to generate value.

Afuera — it is time.

The post British ¡Afuera! #2 – Higher Education appeared first on Institute of Economic Affairs.

Does Britain need a wealth tax?

iealondon — Sun, 28 Dec 2025 10:52:37 +0000

On 2 December, King’s College London’s Politics Society organised a debate on the question of whether Britain needs a wealth tax. Former Business Secretary Sir Vince Cable and Prof Josh Ryan-Collins from University College London argued in favour; IEA Economics Fellow Dr Andrew Lilico and IEA Editorial Director Dr Kristian Niemietz argued against it. The article below is based on Kristian’s opening remarks.

The easiest way to approach a question like this is by asking: has anyone ever done this before, and if yes, what were the results?

In the case of the wealth tax, that is a fairly straightforward thing to do. Wealth taxes have been tried lots of times. In the early 1990s, about half of Western Europe still had wealth taxes of one type or another. In the meantime, almost all of those countries have given up on them, including, in some cases, under left-wing governments. Today, only Norway, Switzerland and Spain still have wealth taxes, and the Spanish one has so many exemptions that it is largely symbolic; they might as well just scrap it altogether.

If you look at how governments that have scrapped their wealth taxes have justified that decision, you will find three motives that pop up again and again:

1.) Wealth taxes are a bureaucratic and administrative nightmare.

2.) Wealth taxes supress investment and capital formation.

3.) Wealth taxes don’t raise much revenue anyway.

Revenue

I’ll start with the last point. Some supporters of wealth taxes – Zack Polanski in particular – talk about them as if they were the ultimate cash cow. But actually existing wealth taxes never have been. Not even close.

With the exception of Luxembourg, which had a broad-based wealth tax not limited to the super-rich, nobody has ever managed to squeeze much more than 1% of GDP out of a wealth tax. Switzerland raises just over 1% of GDP from its wealth tax, as did Sweden, and as did West Germany for a while. Revenue-wise, this is about as good as it gets. Most wealth taxes have raised far less than that: a quarter of a percentage point of GDP or so is far more typical.

But let’s assume that a British wealth tax would be among the better ones. Let’s say it raises 1% of GDP. We currently have a budget deficit of almost 5% of GDP, so a wealth tax wouldn’t even touch the sides. Maybe Mr Polanski has magical growth-inducing powers. He’s going to need those to grow his wealth tax revenue, if he wants to deliver even a fraction of what he’s promised to do with it.

Valuation

So what, I hear you say. Even if it only raises a few billion, that’s still better than nothing. A wealth tax that doesn’t exist raises £0.

Which would be a fair point is wealth taxes had no downsides. But they do. One of them is that they require a massive valuation bureaucracy.

Essentially, the problem here is this: we don’t know how much things are worth until we offer them, and see how much people are prepared to pay for them. That’s not a problem for income taxes or consumption taxes, because those are tied to market transactions. If you offer something for £10, and people buy it for £10, then that it’s not unreasonable to suggest that that thing is probably worth around £10. The government can then slap a tax on those £10. But wealth taxes are not tied to any transactions.

That’s not a problem for assets that are traded with sufficient frequency. Suppose you own shares in Microsoft which you never trade. That’s not a problem. We still know how much a Microsoft share is worth. You may not trade yours, but millions of other people trade theirs, and those are identical to yours.

It becomes a problem, though, for assets that have no close substitutes, and that are infrequently traded. Take houses. I recently had to move house, because our landlord was selling. I asked him, out of interest, how much he was planning to ask for. It turned out that he had no idea, because the place hadn’t been sold since the 1990s. He said he’d need a professional valuation. Now, this was on the border of Zone 2 and Zone 3 in London, where there are lots of transactions, and where there are several near-identical homes nearby. Imagine having to do this all over the country.

If we look at the wealth composition of households with net wealth of more than £5m, it turns out that assets which are particularly hard to value are overrepresented. More than 40% of it is business wealth. How do you value a business that has not been sold for many years? How do you value a business that has never been sold? It’s a massive headache for little gain.

The old (West) German wealth tax was abolished for precisely that reason. After 100 years, they had still not sorted out their valuation issues. Maybe it’s just because they never had a Zack Polanski or a Gary Stevenson, but it could also be because it genuinely cannot be done any better.

Impact on wealth formation

The Wealth Tax Commission was an academic project that was extremely sympathetic to wealth taxes. They never explicitly said that, but why else would you even bother to set up or join such an organisation?

Anyway: after reviewing all the empirical evidence on behavioural responses, even they couldn’t bring themselves to recommend a wealth tax as a permanent feature of the tax system. They went, instead, for the cop-out of recommending a one-off wealth tax only.

Why? Because they found that what the critics of wealth taxes say about their behavioural effects is largely correct, even if it has sometimes been exaggerated.

This is something which proponents of wealth taxes often get wrong. They see a wealthy businessman on TV, who threatens to leave the country if a wealth tax is introduced, and they think: ‘Come on, this is surely just a bluff!’ And they’re right. It probably is a bluff. But it doesn’t follow that the opposite is true, and that nobody ever changes their behaviour in response to a wealth tax.

Of course people sometimes exaggerate. This is a political debate, and that’s what people do. But people who are subject to a wealth taxes really do adjust their behaviour in a number of different ways. None of these responses are huge, on their own. There is not going to be a sudden exodus of millionaires, or an investment stop, or a collapse in the savings rate. I grew up in a country which had a wealth tax. That didn’t mean that there were no millionaires: of course there were. It didn’t mean that there was no investment: of course there was.

But at the margin, people do adjust their behaviour. These small, marginal responses add up, and they grow bigger over time. They don’t ruin the country, but they make it somewhat poorer than it otherwise would have been. And for what?

Why here, and why now?

There are parts of the world, and periods in history, where I can see where supporters of wealth taxes are coming from. In the US, the wealth share of the top 1% went up from 22% in the late 1970s to 36% in the early 2010s, with a particular jump during the Great Financial Crisis. It was against that backdrop that Thomas Piketty’s book took off. I still don’t think a wealth tax would have been the right answer, but the people supporting it were asking the right questions.

In Britain, the issue came up after World War I. Wealth inequality was sky-high, the country’s public finances were in dire straits, and there was social unrest. Again, I still don’t think a wealth tax would have been the right answer, but it’s no surprise that lots of people thought otherwise.

But why now, and why here? Wealth inequality is not especially high in Britain, and it is not rising. The tax burden is already at record levels, and according to the OBR, it is going to rise even further over the coming years. Public spending has gone up from about 40% of GDP just before the pandemic to 45% today, and it is not at all clear what we are getting in return for all that extra spending. Imagine looking at Britain’s fiscal situation, thinking: ‘I know what this country needs right now – yet another tax!’

What problem would that solve? It would be like Rachael Reeves’s promise last year, when she announced a big tax hike, that she would not come back in a year’s time asking for more. With her latest Budget, asking for more is, of course, exactly what she has done.

Does anyone seriously think that if Britain introduced a wealth tax, there would be no further demands for additional spending on the NHS? On climate policy? On working-age welfare, on old-age benefits, on public sector pensions and pay rises? Of course there would be! There always will be. Any extra revenue from a wealth tax (if there is any) would immediately be taken for granted, and a year later, the same campaigners who always call for higher spending will be back again, calling for more.

Again: since 2019, public spending has already increased by five percentage points of GDP. This increase has had next to zero impact on political debates and the political climate. We are still being told that the NHS is being ‘defunded’, that we’re not doing anything on climate change, that ‘austerity’ is destroying the social fabric, and all the rest of it. No conceivable level of wealth taxation is going to make the blindest bit of difference to that.

The alternative

Last but not least, opposition to the wealth tax is not support for the status quo. I don’t particularly care about wealth inequality, but there are a number of things we could do which would make economic sense, and which would also, as a side effect, lead to a more equal distribution of wealth. That’s not the reason why I support those measures, but it doesn’t hurt.

I’ll mention two. Firstly, I would like to see a much more savings-based pension system. Rather than forcing people to pay high pension contributions to the state, I’d rather have a system in which people are given the opportunity to regularly put modest amounts of money into their own pension funds. Unlike wealth taxes, such systems have been shown to work in practice, for example in Australia and Chile. In those systems, everyone gets the opportunity to build up some wealth over time. You get a more equal distribution of a bigger pie of wealth.

Secondly, I’d massively liberalise building rules, and flood the market with new homes. Indirectly, that would amount to a redistribution of property wealth, because those who are already well-housed would see the value of their property decline, but those who are currently locked out of the property market would be able to get in. It would be a market-led redistribution, not instead of growth, but through growth: the average property value would be lower, but there would be more of them, so the total amount of property value in the country would be higher.

Imagine half of the political energy and enthusiasm that currently goes into the promotion of wealth taxes went into promoting an abundance agenda instead. We’d be in a much better place.

The post Does Britain need a wealth tax? appeared first on Institute of Economic Affairs.

Does neoliberalism exist?

iealondon — Thu, 18 Dec 2025 10:46:59 +0000

By Anthony J Evans, Associate Professor of Economics at ESCP Business School

Thus far, debates about the term “neoliberalism” have not been particularly constructive. I believe this rests on two separate (but related) questions:

1. Is “neoliberalism” a useful concept for understanding our political and economic system?

2. Is that system desirable?

There is a lot of academic literature that is grounded in the concept and the vast majority is used to critique capitalism. Indeed, use of the term “neoliberal” overwhelmingly grew as a pejorative. With origins in David Harvey, and embodied by academics such as Quinn Slobodian as well as writers like George Monbiot, “neoliberalism” is presented as something both real and detrimental. But there is a danger of conflating these two issues. There is a risk that the term is propagated because it serves as an effective rhetorical strategy, rather than the best means to clarify arguments. And there is a suspicion that ideological pre-commitments dominate a search for intellectual clarity. For non-Marxists and pro-market classical liberals or libertarians, is the label relevant?

Over the last decade or so there has been a notable attempt to “reclaim” neoliberalism, pushed by think tanks and journalists. Strategically, it might make sense to jump on the bandwagon, because part of the battle of ideas is contributing to how terms are understood. Neoliberalism thus becomes a contested brand. You have your museum, we have our bright and optimistic Reddit thread.

But there has also been consideration to the term from academics.

The common attitude amongst pro-capitalist scholars is to dispute the validity of the concept and ignore most of the literature as being flawed and ill-intentioned. Phil Magness has publicly rejected the label, and Vincent Geloso has cautioned against adopting it, even for strategic purposes. Embodying the attitude of many libertarians, Robert Lawson and Phil Magness have recently published a book called “Neoliberal Abstracts” which gathers summaries of actual peer-reviewed academic articles to highlight the plethora of absurd and baffling work being done in its name. Their contribution is funny and well timed. It also gives the impression that critics of neoliberalism have little to gain from a constructive engagement. But this would be false.

Consider the following three books: “The Neoliberal Revolution in Eastern Europe” (written by myself and Paul Dragos Aligica), Mark Pennington’s “Robust Political Economy”, and “Neoliberal Social Justice” by Nick Cowen. All serious academics working in top research institutions. We are perhaps best labelled as “classical liberals” but give sufficient scope to political economy in our research objectives to justify a normative context and the validity to advocate as well as analyse alternative systems. And we have used “neoliberal” as a descriptive, neutral term. I define it as “a political and economic philosophy that emphasises the role of markets to solve social problems” but also recognise that this might be a work in progress. Ultimately, however, we all utilise the concept and can broadly be considered to be neoliberals.

In my own research, I have suggested that neoliberalism has passed through four distinct phases and have also articulated my specific criticisms of neoliberal policy. For example, I think that two clear outcomes of neoliberalism are (i) independent and technocratic central banks; and (ii) a rejuvenation in state capitalism. Consider Alan Greenspan and Deng Xiaoping to be two of the most influential neoliberals of the twentieth century. Where I differ from strict neoliberals is that I think free banking would be a superior system to a centrally planned monetary system, and China’s economic transformation does not constitute an attractive transition plan. Where I differ from the critics of neoliberalism, however, is to say that independent central banks are preferable to political control of the money supply, and that state capitalism is better than no capitalism. Indeed, the fact that I am pragmatic in my judgments, and recognise that context plays an important role in judging the desirability of policy action, reveals how comfortable I am with being considered part of the “neoliberal thought collective”.

My main claim is that critics of neoliberalism should not dismiss neoliberal expertise.

If we create a matrix displaying adherence to neoliberalism as a concept, but also as an ideology, we have four distinct categories. The polar opposites of Lawson, Magness, Geloso and Harvey, Slobodian, Monbiot (who are all, in their own ways, anti-neoliberal) should not detract from the potential for a constructive academic debate that attempts to take the concept seriously.

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My most recent effort to pursue meaningful scholarly enquiry is a survey of recent critical histories of neoliberalism, just published by the journal ‘Critical Review’. In it, I pay particular attention to books by Philip Mirowski, Will Davies, Thomas Biebricher, Quinn Slobodian and Jessica Whyte. While disagreeing with large parts of their work, I have attempted a charitable reading and to treat them respectfully.

I hope that they will read my paper and provide an appropriate response. But I won’t hold my breath – previous reviews of work by Wendy Brown and George Monbiot have thus far gone unanswered. I guess as long as I don’t end up in the second edition of Neoliberal Abstracts, that will be a triumph of sorts!

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Book review: “The Laissez-Faire Experiment” by W. Walker Hanlon

iealondon — Thu, 11 Dec 2025 10:42:09 +0000

This book review was first published by the Centre for Enterprise, Markets and Ethics

By Mark Koyama

Economic historians have a growth preoccupation. The Industrial Revolution and its causes play the leading role in most prominent books in the field. And there are many other works that seek to explain the absence of an industrial revolution elsewhere in the world.

It is refreshing therefore to read a book that is not about the causes of industrialization but its consequences. If we reach back to the past, say, 200 or more years ago, two dramatic transformations are visible: one is the abundance of material goods and transformative technologies due to industrialization; the second transformation is the rise of large, modern, welfare states.

Walker Hanlon’s book The Laissez-Faire Experiment addresses this second transformation. He asks two fundamental questions: ‘First, how well did limited government in mid-19th century Britain work? Second, why was limited government abandoned in favor of the more interventionist government found in the U.K., and essentially all other developed countries, today?’

Hanlon’s argument is elegant and simple and it is grounded in standard economic theory.

The main problem facing the British economy in the early 19th century was dismantling the inefficient policies of the pre-Napoleonic war era, i.e., the fiscal-military state of the 18th century which protected large land-owners and relied on local and ad hoc institutions. Hanlon suggests that laissez-faire was an appropriate economic philosophy in this context: ‘across the first half of the nineteenth century, Britain’s laissez-faire system was successful. Economic growth was booming, and the benefits were accruing not only for the rich but also for average workers. Technological progress continued at a rapid pace. As a global power, Britain was unmatched.’

But, as the Industrial Revolution unfolded, the costs associated with this policy of non-interference mounted. For example, rapid urbanization brought new problems of overcrowding, sanitation, disease control, and pollution. There was a large health penalty to urban living in the 19th century.

Hanlon provides a compelling empirical assessment of the economic problems that led British policymakers to adopt a more interventionist series of policies. Increasingly severe market failures in the form of externalities from pollution, or asymmetric information in a range of markets, made government intervention potentially welfare enhancing.

The book is admirably clearly written. First, Hanlon presents the relevant economic analysis, which will be familiar to those who have taken Intermediate Micro or Public Economics, outlining the main explanations for market failure: information problems, monopolies, credit constraints, public goods, and coordination problems. Each chapter then considers different applications of the general principles, and provides a survey of relevant literatures in economic history, for example the literature on child labor regulations or urban public health.

The chapter on unemployment insurance, for example, condenses a tremendous amount of information and evidence into just a few pages. One charge that classical liberals have made against the modern state is that unemployment benefits and insurance crowded out the many forms of charity and private insurance that were commonplace prior to the welfare state.

Indeed, Hanlon discusses the wide array of traditional and occupation-based non-government forms of insurance available prior to 1850. He then, however, explains how the rise of large, geographically concentrated industrial agglomerations based on a single industry, such as cotton textiles in Lancashire, changed the problem of insuring workers. Neither family, locality-based, nor occupation-based forms of unemployment insurance, could deal with a general downturn in cotton textiles.

Overall, the book offers an exemplar of how to write a modern work of economic history. I wouldn’t hesitate in recommending this book. Beyond an economic history audience, it is an important book for anyone interested in understanding the rise of the modern state in the 19th and 20th centuries.

Nonetheless, as I discuss below, I want to push the implications of the book’s arguments a little further and explore some aspects of the debate which Hanlon perhaps neglects.

Was there a Laissez-Faire Consensus?

Having lavishly praised The Laissez-Faire Experiment as a work of economic history, my more critical comments will focus on the implicit political economy of the book and its treatment of economic ideas.

First, and I think intentionally, Hanlon’s treatment of what he calls ‘a laissez-faire philosophy’ is remarkably flat. I say intentionally as Hanlon clearly wants to focus on the economic history. From this perspective, too much engagement with the literature on the history of ideas would be distracting. So, he uses laissez-faire as a short-hand to refer to what is often called classical liberalism, essentially the idea of limited government and a general presumption of liberty.

This is entirely understandable and indeed defensible. Nonetheless, there is a price to taking this approach, which I will attempt to cash out below.

First, there is the use of the term laissez-faire as a shorthand. Classical liberalism has never been identical to laissez-faire because classical liberal thinkers have always recognized areas where government intervention is required.

Hanlon doesn’t really defend his use of laissez-faire as shorthand. But this approach overstates the degree of elite consensus and underestimates the extent to which there were competing intellectual traditions in 19th century Britain.

It is true that many of these positions came together in favoring a limited state in the mid-19th century, but it is precisely by recognizing that they were not a coherent ‘philosophy’ that we can appreciate why some of the leading figures also came to push for more technocratic interventions in society. A case in point would be Edward Chadwick. Chadwick was both a utilitarian follower of John Stuart Mill and a founder of modern public health and policing and he was more than willing to abrogate private property rights to achieve an improved societal outcome.

Hanlon’s narrative is of liberal, laissez-faire inclined policymakers and thinkers confronting the reality of widespread market failure and externalities and gradually adapting their policies and intellectual principles. He writes that ‘government intervention during the nineteenth century was not the work of a group of ideological collectivists. Rather, many interventions were the work of laissez-faire adherents who nevertheless believed that intolerable or inefficient conditions exist and were open to the possibility of experimenting with various forms of government intervention’. My feeling is that a deeper investigation of the ideas and writings of the classical economists and associates like Chadwick will reveal a more forthright commitment to policies of amelioration and improvement, rather than what is conventionally meant by the term laissez-faire.

Moreover, as Colin Holmes documented more than 50 years ago, something recognizable as a doctrine of laissez-faire did exist in the mid-19th century but it was never the animating principle of the British elite or government. Opposition to great government involvement in society could be animated by traditional ‘small c’ conservative principles. We don’t get a sense of this opposition (no John Ruskin or Thomas Carlyle, for example) in The Laissez-Faire Experiment.

Acknowledging this does not weaken Hanlon’s argument, but it would strengthen our understanding of the issues at hand in 19th century Britain.

The Role of Political Economy

My second comment concerns the treatment of political economy in the rise and fall of laissez-faire.

In general, Hanlon’s treatment is broadminded. He doesn’t assume that the existence of widespread market failures automatically translated into policies that could by assumption correct for those failures. Aware of the role played by both ideology and interests, he rather argues that the market failures that were exacerbated by industrialization ‘created opportunities for efficiency-enhancing government intervention’. Many factors would be critical in determining the extent to which these opportunities were realized.

Hanlon provides a similarly nuanced discussion of the shift towards more government activism at the end of the 19th century. He draws on recent historical scholarship to discuss the extent to which the example of the German welfare reforms and the pressures of war and imperial competition pushed policymakers away from laissez-faire.

Nonetheless, this part of the argument was less compelling than the first part of the book where Hanlon provides a systematic account how the new industrial economy generated all kinds of new externalities.

There is a reason for this. The type of evidence that Hanlon does a great job of assembling is very convincing in demonstrating the existence of market failures. He combines rigorous evidence with economic theory. But he doesn’t have an equivalently powerful framework for discussing how and why certain policy decisions were made.

In his conclusion, Hanlon tackles some of the big questions raised by his account: ‘is there evidence that the expansion of British government intervention . . . was misguided?’. Hanlon provides evidence that this was not so. He contends that policymakers followed experience and were not led by public opinion.

There is a risk here that the political economy of the 19th century does not get the full attention it deserves. Political economy is about heterogenous preferences and Hanlon’s framing in terms of an unmet nascent demand for education or for regulations abstracts from these conflicting preferences. Hanlon appreciates that government policies do not always achieve their aims. But political economy considerations are only occasionally mentioned, for example in explaining the failure to tackle coal pollution.

In contrast, conflicting political interest groups were prominent in earlier accounts of the rise of the state in late 19th century England. Holmes noted that what was traditionally seen as the high-point of laissez-faire ideology, the mid-19th century, was in fact a period of centralization and increased regulation, a point that Hanlon’s narrative and data in fact substantiate. But the role of conflict between different interest groups is not a major theme in The Laissez-Faire Experiment. And this also limits the ability of Hanlon to speak to developments in the 20th century, when much larger and more interventionist states emerged.

None of these comments take away from the fact that The Laissez-Faire Experiment is a great work of economic history and a major achievement. All subsequent scholarship will have to engage with it and will no doubt build upon its findings.

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