To speak about economics as applied to environmental harms, one must know something about economics generally and its conceptual frameworks as applied to policy. While possibly seeming dry and abstruse, these fundamental concepts have direct relevance, including for those more interested in environmental than economic issues. However, this publication also covers issues relevant to people more concerned about questions of economics and public policy generally. In past decades, economics has provided much of the language in which environmental harms have been discussed. The purpose of this chapter is to introduce some of the basic terminology and concepts that will be useful later, attempting to limit jargon and eschewing graphs and mathematics (which do little for those trained in basic economics and risk turning off those who aren’t).
This chapter runs through the basic functioning of markets as presented to beginner students of economics. Markets enable spectacular human feats and allow coordination across culture, geography and even time. While imperfect, the logic of this functioning is worth stressing prior to considering the ways in which markets can result in outcomes that call for intervention. Following an outline of these situations there follow some idealised policy responses to the externality problem at the heart of many environmental concerns (addressed in more detail in Chapters 2 and 3).
One of the first tasks of an economics instructor is to illustrate the emergent benefits of self-interested behaviour by individuals. In the nineteenth century the pamphleteer and economist Frédéric Bastiat wrote of how Paris managed to get fed even though no one person or bureaucracy was tasked with ensuring this. This answer is obvious at a mundane level: the customer at the bakery and the person behind the counter are engaged in a positive-sum trade. The goods that appear in the shop only do so because of a series of profit-seeking – if not always profit-achieving – acts. Extending out these interconnecting and overlapping mundane relationships that populate our commercial life shows the rather amazing functions of markets to encourage social cooperation through the billions of voluntary acts that occur in markets every day.
This behaviour takes place in the face of scarcity. Resources are inherently limited, while human wants and needs are largely unlimited. This scarcity creates the need to make choices about how best to allocate resources. In a market society this is achieved through the process of commercial transactions. In the 1930s, Lionel Robbins formulated a definition of economics that is still popular: ‘Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.’[1]
When making decisions, individuals must consider the opportunity cost; that is, the value of the next best alternative course of action. Gold may make a great conductor for electrical wiring but this inherent feature doesn’t result in its being so used because alternative uses are more highly valued. Opportunity cost determines the trade-offs that individuals negotiate in how they and others use resources. Thinking about these trade-offs makes it clear there are opportunities for exchange if the value derived from holding a good is less than the value from trading it for something else. Voluntary exchange in markets is by its very nature mutually advantageous for buyers and sellers, and because of their exchange, society at large becomes wealthier.
The key to this process is the price mechanism. Individuals and firms engage in voluntary exchanges, buying and selling goods and services. As these transactions occur, prices naturally form based on the supply and demand for each product or service. These prices then serve as signals, informing both producers and consumers about what is valuable and how resources should be directed.
Some buyers may be willing to buy a pastry at £3, others at £5; some bakers may be willing to sell it for £3, others for £1. In this situation we can see that if the market price is £3, the consumer who values the pastry at £5 has garnered a consumer surplus of £2 (what they were willing to pay less what they did). A producer willing to sell a pastry for £1 has garnered a producer surplus of £2 when it is sold for £3. All gains from trade are exhausted when markets clear. This occurs in equilibrium at a price where the marginal benefit of buying the final good is equal to the marginal cost of selling it. Both buyers and sellers can vary in their valuations, but the basic point is that the diversity of valuations is what generates gains from trade, whereby resources flow to those who value them.
But prices do more than just allocate current resources: they also serve as beacons for potential profit opportunities. In this sense the price mechanism not only coordinates immediate economic activity but allows dynamic, long- term improvements in economic organisation with the help of interest rates and accounting practices that allow intertemporal calculation. The prospect of earning profits by introducing innovative products, services or institutional arrangements spurs experimentation and progress. Producers who do not create value do not garner profits. If the inputs cost more than consumers are willing to pay for a product, the business is unlikely to stay viable for long. The COVID-19 pandemic demonstrated the amazing resilience of markets, as they continued to operate in extreme circumstances.
As emphasised by Friedrich Hayek and then generally accepted towards the end of the last century, this decentralised, market-driven process of price formation allows for far greater social coordination than a centralised, top- down system could achieve, despite the numerous deviations of markets in practice from idealised models and idealised alternatives to markets.
In the proper institutional context, individuals do not need to know or trust one another to engage in these cooperative relationships – they can simply rely on the underlying incentives created by the price system. The prospect of mutual gain encourages people to specialise, innovate and coordinate their efforts, resulting in a far higher standard of living than could be achieved through isolated self-sufficiency.
Pareto efficiency – after the Italian economist and sociologist Vilfredo Pareto – occurs when resources are allocated such that no individual can be made better off without making another worse off. This matters because it gives us a straightforward way to evaluate economic outcomes that most people can agree on: if we can make someone better off without hurting anyone else, that’s clearly a good change. The Pareto standard of efficiency set a high bar by requiring that economic changes help some people without hurting anyone, which proved impractical for most real-world policy decisions. The Kaldor-Hicks approach – after the economists Nicholas Kaldor and John Hicks – considers a change efficient when total benefits exceed total costs, even if some people end up worse off without compensation. It is this standard that is the basis of cost–benefit analysis covered later in this publication.
Adam Smith’s famous ‘invisible-hand’ metaphor suggests that the pursuit by individuals of their self-interest in free markets can lead to socially beneficial outcomes. In ideal conditions, competitive markets tend towards Pareto efficiency, as if guided by an invisible hand. However, market failures can prevent this optimal allocation, necessitating careful analysis of real-world conditions and potential interventions to achieve efficiency.
In any industry, where there is reason to believe that the free play of self- interest will cause an amount of resources to be invested different from the amount that is required in the best interest of the national dividend, there is a prima facie case for public intervention.[2]
Arthur Pigou
The simple but counterintuitive world of commercial exchange resulting in social benefits is one whereby individuals acting in their own interest leads to the best outcomes for society at large. While Adam Smith was a more nuanced thinker than many suppose, he represented the paradigmatic turn. In The Hesitant Hand, Steven Medema sets out the aberrational nature of Smith’s system as compared to earlier thinkers who little appreciated how the sifting process of markets could lead to social improvement.[3] As he shows, the general tendency of Anglo-American economics in the century after Smith was away from the simple world and towards one with special cases, in which the general case for markets did not hold.
As these special cases became more prevalent, ideas about the general performance of markets changed. Unsurprisingly this is also related to broader conceptions of the appropriate role of the state over time. Thinking about what we would consider theories of market failure started in the nineteenth century, as John Stuart Mill and Henry Sidgwick began writing in the shadow of this shift in attitudes. This perspective – that markets are generally beneficial but subject to market failures which create a prima facie case for intervention – is still widespread, despite additional developments within economics, as described in Chapter 2. Nevertheless the following outlines the conventional framework for understanding these issues.
The concept of externalities refers to impacts that spill over from economic activities but aren’t captured in market prices. These effects involve people who aren’t directly buying or selling in that market. When externalities exist, what’s best for individual buyers and sellers doesn’t match what’s best for society as a whole. This happens because market prices only reflect the costs and benefits that matter to those directly involved in transactions, while ignoring wider impacts on others. A classic example is a factory that maximises profits without considering how its pollution affects nearby residents.
A basic finding from welfare economics is that when externalities are present, markets produce outcomes that aren’t socially optimal. This means there is an inefficiency in how resources are used because decision-makers are responding to incomplete information about true social costs and benefits (i.e. when the third-party costs and benefits are included). In the standard analysis, understanding and addressing these spillover effects is essential for evaluating how well markets work and for designing policies that better serve society’s interests. In the paradigmatic case of pollution from a factory, the true cost to society is higher than what the factory owner pays. If factory owners had to pay for the full pollution costs, they would account for all relevant social costs.
It’s important to understand that the optimal use of goods with negative externalities isn’t zero. Even if a product from a polluting factory creates social costs, it still provides value to buyers. The problem occurs when some units are produced that are worth less than their total cost to society. For example, if someone is willing to pay £30 for a steel pan that costs a supplier £20 to produce, but also creates £5 in pollution costs not borne by the supplier, the consumer should buy it because the value (£30) exceeds the total social cost (£25). On the other hand, optimal policy would mean that a consumer who values the pan at less than the full cost of the product (including the harm of the pollution) would no longer purchase it. This distinction matters when we think about policy solutions.
The same logic applies to goods with positive spillover benefits. For instance, flu vaccines protect the person getting the shot, which may be chief among the benefits they consider when deciding whether to get vaccinated.However, from society’s perspective there are other benefits, namely reduced disease-spread, which protects others.
Another standard example, from the Nobel Prize winner James Meade, has to do with two agricultural producers.[4] Imagine an area of the countryside with both orchards and beehives. A farmer’s orchard provides the resources honeybees need to make honey, but this benefit is external to the decision-making process of the orchard owner. The apiarist benefits from the decision of the farmer to plant an orchard, but without capturing this spillover, basic analysis suggests the orchard owner will underprovide. His private benefit from planting an additional tree is lower than the social benefit. If there were a way to capture the broader benefit (the honey produced by the bees as a result of the orchard), the farmer would plant more trees. In the basic theory, spillovers suggest that there may be a role for policy to improve market outcomes.
The concept of externalities is closely related to the economic theory of public goods. While externalities refer to the unintended side effects that arise from the production or consumption of a good or service, public goods are specific types of good that inherently exhibit certain externality- like characteristics. In the 1950s the economist Paul Samuelson formalised the definition of public goods.[5] This built on previous ideas about the state provision of goods and was part of a broader, mid-century conceptualisation of the proper role of the state vis-à-vis markets.
Unlike standard consumer goods that are bought and sold in everyday markets, public goods possess two distinctive features identified by Samuelson: non-rivalry and non-excludability. Non-rivalry means that when one person uses the good it doesn’t reduce its availability to others – in contrast to standard goods like shirts or cars, which can only be used by one consumer at a time. Non-excludability means that people can’t be prevented from benefiting from the good, even if they haven’t paid for it. Because of these twin attributes, markets typically underprovide public goods compared to what would be socially optimal, as private actors cannot capture the full benefits of their investments and thus have little incentive to provide them.
A classic example – originating in nineteenth-century English economic writing[6] and then used in twentieth-century textbooks – is a lighthouse that helps guide ships safely along a certain coast. Using language from the twentieth century, the light from the lighthouse is non-excludable: once operational its benefits can’t be excluded from passing ships, whether they paid for it or not. The light is also non-rivalrous: one ship benefiting from it doesn’t diminish its usefulness to others. This makes the lighthouse a quintessential public good.
This non-excludability creates a free-rider problem. Self-interested ship captains have an incentive not to pay for the lighthouse service since they cannot be prevented from consuming its benefits. But if everyone followed this logic, the privately funded lighthouse would not be built in the first place due to lack of demand, even though its presence increases maritime safety and benefits society. This free-rider problem helps explain why many public goods end up being underprovided by private markets alone.
The underprovision of public goods like lighthouses is a classic collective- action problem, stemming directly from the characteristic of non- excludability. Because the benefits of a lighthouse cannot be excluded from passing ships, whether they paid for it or not, each individual ship operator has a rational incentive to free-ride and not contribute funding. However, if everyone follows this individually rational strategy of free-riding, it leads to a collectively irrational outcome: the under-provision or non-provision of the socially beneficial lighthouse service. While it would be in everyone’s collective interest to fund the lighthouse, this inability to exclude creates a disconnect between individual and group interests.
This misalignment, where pursuing narrow self-interest generates an equilibrium harming the group as a whole, defines a collective-action problem. The root cause is the public good’s non-excludability. If exclusion were feasible, users could be forced to pay, aligning individual incentives with the collective good; but when it is not, cooperating for the group’s interest becomes a challenge absent external interventions.
While pure public goods suffer from free-rider problems due to non- excludability, these issues are largely resolved for club goods.[7] Club goods are excludable, though non-rivalrous in consumption. They exclude non- payers from accessing the benefits, even though no single person’s use diminishes the availability for others. A streaming service like Netflix isa common example: only fee-paying members can gain access. Before technology enabled excludability, this was a widely held argument for state regulation and consumer licence fees for radio and television broadcasting. With the excludability of club goods, free-riding is addressed since non- payers can simply be excluded. This allows suppliers to capture the benefits they create by getting users to pay fees or membership dues.
A common-pool resource is a type of good that is rivalrous, meaning one person’s consumption diminishes availability for others, but it is also difficult to restrict access. Examples include fisheries, forests, irrigation systems and grazing lands. When open access allows overexploitation without any incentive to conserve the shared resource, it can result in the ‘tragedy of the commons’ that Garrett Hardin popularised.[8] The logic is not new to Hardin– the defence of private property has rested on the problems of common ownership since at least Aristotle – but the phrase stuck. It refers to the situation whereby individuals acting independently and rationally according to their own self-interest behave contrary to the best interests of the whole group by depleting the resource held in common.
The ‘tragedy’ arises because each individual receives the full benefit of their own use of the resource but the costs of overuse are dispersed among all those with access. Without any incentive to limit consumption and exclude others, the optimal response is to maximise personal exploitation before others do so. Inevitably this leads to overconsumption, degradation and depletion of the finite resource, leaving all parties worse off than if they had successfully cooperated and restricted their consumption.
Policymakers and citizens have instituted a full range of policies to regulate markets. In many cases those regulated fit roughly into the theories presented above about how certain features of markets will result in suboptimal outcomes. While politicians have sought to address markets that economists think are prone to problems, this doesn’t mean policies are in line with the recommendations of economists.
Perhaps the most common approaches to environmental harms are direct regulation of pollutants, such as smoke, along with taxes aimed – at least in part – at correcting externalities. The benefits of the tax approach as opposed to command-and-control regulation are usually stressed by economists. The practicalities of other options and their rates of take-up will be discussed later. But first, why are economists generally less keen on regulation that simply bans the harmful acts?
The tax solution to externalities, namely Pigouvian taxes, are named after the twentieth-century British economist Arthur Pigou. A government can assess a tax on the sale of goods that have a negative externality in production. The easiest example is a coal-fuelled power station that spews out harmful emissions while powering factories producing things consumers want. By assessing a tax equal to the size of the harm, market participants will optimise their decisions in a way that leads to the optimal social outcome. Consumers will face a higher price and reduce consumption and producers will also make decisions about their methods of production in response to a tax. The consumers least willing to pay the higher price won’t purchase the product and on the supply side the least efficient producers will reduce production.
Taxing externalities can generate ‘double dividend’ welfare benefits beyond just reducing harmful activities. Taxes that do this correct market distortions by making polluters pay the true social cost of their actions while simultaneously generating revenue that can replace other distortionary taxes – such as income and sales taxes – that create inefficiencies by discouraging productive economic activity. Taxing ‘bads’ not only reduces them, but in replacing taxes on ‘goods’ it generates additional benefits.
Unlike command-and-control regulations, Pigouvian taxes don’t dictate specific solutions but instead harness the market’s efficiency by allowing countless individual decisions collectively to determine the least-cost methods of reducing harmful activities. The tax simply ensures these decisions reflect true social costs rather than just private ones, enabling the market’s invisible hand to arrive at the socially optimal outcome.
These benefits are more apparent in contrast to the kinds of command- and-control interventions one can imagine or see in the real world, such as requiring all coal-fuelled power stations to install a piece of technology like a scrubber to limit sulphur dioxide emissions, or requiring all stations to reduce emissions by a certain percentage. With these interventions the policy barely distinguishes the abatement costs between polluters: those who can achieve reductions relatively cheaply are not incentivised to continue doing so beyond the intervention required of all producers.
Regulations that vary based on the age of the facility – as some do in the real world as a proxy of cost – result in the incentive to keep older facilities around. The outcome of these interventions is that emissions are reduced inefficiently; that is, at a greater cost than necessary.
Perhaps the most basic counterintuitive economic point about pollution is that the optimal amount of it in the real world is almost always not zero. In the example of a product whose production emits smoke pollution, this smoke is clearly the by-product of making goods valued by consumers. It may cause physical discomfort and financial losses for the owners of nearby land (as the harm of the disturbance is priced into the land as it works through the market), but this harm is just one side of the ledger, with the net value of the products to the consumers on the other.
Additionally, the diversity of users means many standard policy responses are likely to be less efficient than Pigouvian taxes. Some users are willing to pay more for a product than others; some suppliers are willing to sell them cheaper than others. Therefore a tax in line with the social cost means that goods will still be used by those who place the highest value on using them. Furthermore, the supply-side response elicited by the tax comes from the producers who can reduce pollution at the least cost (discussed in detail in Chapter 3).
This chapter has introduced a basic analytic framework for understanding how markets function: supply and demand and the idea that individuals’ incentives can lead to social benefits. It has also discussed market failure – specifically in relation to externalities, public goods theory and the commons – which many draw on to critique market performance and suggest policies that can lead to better outcomes. Taken together, this has offered the type of view of the market that many hold; that is, in some cases it performs well, in others poorly and requires intervention. Chapter 2 builds on this cursory introduction with later economic theory and findings.
[1] Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan & Co., 1932), p. 15.
[2] Arthur C. Pigou, The Economics of Welfare, 4th edn (London: Macmillan & Co., 1932), p. 331; Steven G. Medema, The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas (Princeton, NJ: Princeton University Press, 2009), p. 64, doi:10.1515/9781400830770.
[3] Medema, The Hesitant Hand.
[4] James E. Meade, ‘External Economies and Diseconomies in a Competitive Situation’, The Economic Journal 62, no. 245 (1952), pp. 54–67, doi:10.2307/2227173.
[5] Paul A. Samuelson, ‘The Pure Theory of Public Expenditure’, The Review of Economics and Statistics 36, no. 4 (1954), pp. 387–9, doi:10.2307/1925895. Though contemporary historians argue that this attribution should be shared with Richard A. Musgrave; see
Maxime Desmarais-Tremblay, ‘Musgrave, Samuelson, and the Crystallization of the Standard Rationale for Public Goods’, History of Political Economy 49, no. 1 (March 2017), pp. 59–92, doi:10.1215/00182702-3777158.
[6] ‘… it is a proper office of government to build and maintain lighthouses, establish buoys, etc. for the security of navigation: for since it is impossible that the ships at sea which are benefited by a lighthouse, should be made to pay a toll on the occasion of its use, no one would build lighthouses from motives of personal interest, unless indemnified and
rewarded from a compulsory levy made by the state’, John Stuart Mill in Principles of Political Economy, as quoted in R. H. Coase, ‘The Lighthouse in Economics’, The Journal of Law & Economics 17, no. 2 (1974), p. 357.
[7] James M. Buchanan, ‘An Economic Theory of Clubs’, Economica 32, no. 125 (1965), pp. 1–14, doi:10.2307/2552442.
[8] Garrett Hardin, ‘The Tragedy of the Commons’, Science 162, no. 3859 (December 1968), pp. 1243–8, doi:10.1126/science.162.3859.1243.
At the launch of the Centre for Enterprise, Markets and Ethics, our founding chairman Lord Griffiths of Fforestfach remarked that:
[W]hile a market economy is superior to other economic systems which have been tried, it is far from flawless. Financial stability, environmental sustainability and inequality in income and wealth are three critical challenges to the global economy in which we live. Free market economies left to themselves cannot be relied on to provide solutions to these problems.[1]
In the years since, environmental sustainability has continued to prove a critical challenge not just to the functioning of the global economy as we withstand increased climate challenges, but also to the attitudes towards markets that have in part enabled material progress. The Centre for Enterprise, Markets and Ethics engages in research across the overlapping and nested spheres of philosophy, faith, economics and policy. Rigorous thinking about environmental protection and the economics of environmental problems requires a broader context that considers the dynamics of markets and the realistic political economy of state action. This publication sets out the basic economics that underlie environmental policy discussions, situating them not just within narrow environmental economics but also within the context of thinking about markets and society. In doing so, it builds up from the standard content of an introductory economics course and adds aspects of economic theory and later economic policy crafted considering these developments.
Many students and professionals come away from their introduction to basic economic theory with an appreciation for the market system of allocating and generating resources. Within this theory there are situations where markets are deemed to fail. Over its course this publication will investigate the nature of environmental problems that limits the ability of free markets to result in solutions citizens find appealing, but will also show the problems with an impoverished dichotomy that assumes regulatory alternatives can be relied on to provide the best solutions.
Chapter 1, after restating the foundational conceptions of markets, looks at two core pieces of market failure theory: public goods and externalities. These are the foundational concepts on which much abstract thinking about the economics of the environment and the need for corrective action rely.The chapter shows the abstract solutions to these problems within welfare economics and relates these idealised solutions to those implemented by governments in the real world.
Chapter 2 takes this simplified idea about market failure and corrective policy back to the theoretical roots of the issue. The work of Ronald Coase lies at the core of this chapter, together with related ideas that stress the institutional context of both the problem and any potential solution, whether generated by the market, the state or individuals acting in groups somewhere in between. Coase, as opposed to market failure theorists, would stress that the inherent nature of the problem is one of property rights and transaction costs. This means that causality and harm aren’t as clear-cut as we might think and that much can be gleaned from empirical studies of attempts by actors to deal with these issues. Related are ideas about commons and the institutions that govern collective goods. For instance, Garrett Hardin’s famous notion of the ‘tragedy of the commons’ has guided half a century of thinking despite its short length, shallow depth and odious topic (forced population control).
Chapter 3 considers the rise of American national environmental policy, which began in the 1960s in response to the perceived failures of legal and state policy efforts to respond to the various environmental harms that seemed to be raging out of control. The chapter contextualises this social and legislative history in the earlier post-war resource economicsand politics of resource abundance, which transformed into the economics of the environment. This transition was the result of themes still present in environmental discourse, including material limits, the unaccounted-for costs of environmental harm and the optimal response to environmental problems that would navigate trade-offs between that harm and economic growth. Despite the rise of this thinking, the first generation of policy was largely disconnected from and even opposed to it. It was over the following decades that the analytics and language of economics became central to the discussion of environmental policy. As budgets became tighter and the optimistic goals of early regulation were not achieved, policymakers turned to market-based mechanisms. Within economics this represented a turn from optimal theory to pragmatic policy proposals. Two core examples are realistic pollution taxes and emissions trading (cap-and-trade). In spite of agreement about the inefficiency of the mid-century regulatory framework among economists and evidence from empirical examples of narrow reforms, much of the regulatory framework remains in place. The chapter shows some potential policy reforms organised according to the level of transaction costs involved in establishing markets, and argues that establishing property rights in low transaction-cost settings can simply require the removal of government policy, while in higher transaction-cost settings, markets must be created. Clever policy design allows improvement on the status quo; optimal responses are more difficult to discern. Finally ‘the greatest market failure ever known’ – climate change – is discussed; it is related to many smaller environmental issues but suffers from the worst features of global public goods.
[1] ‘Extracts from a Speech by Lord Griffiths of Fforestfach at the Launch of the Centre for Enterprise, Markets and Ethics’, n.d., https://theceme.org/wp-content/uploads/2015/05/ Chairmans-speech-extract.pdf.
We have compiled some news, comment pieces and announcements that we hope our readers find interesting. In this instalment, there are stories relating to employment and inflation, artificial intelligence, taxation and carbon trading schemes:
Why British workers keep getting pay rises despite weak hiring (Financial Times)
Young hotel workers in Glasgow have negotiated a 10 per cent pay rise following a strike, an outcome that is perhaps indicative of a wider problem in the UK: pay awards remaining relatively high while employment slows down. With a weakening job market, such pay growth appears incompatible with the Bank of England’s target inflation rate of two per cent and there are concerns that inflation will become entrenched if households are now so accustomed to rising prices that they hold out for higher pay awards each year. Meanwhile, while they are reluctant to hire new starters or are keen to cut costs with less generous benefit packages, companies appear unwilling to reduce headline rates of pay when prices remain high and there is a widespread skills shortage
Faith in God-like large language models is waning (The Economist)
Enthusiasm for large language AI models appears to be in decline, with greater interest being shown in small language models. While no clear definition of the difference between the two exists, models that are trained using other AIs rather than having to crawl the web themselves, operate more quickly and with greater energy efficiency as a result of their more limited focus, and will run on in-house IT systems, appear to be more popular with companies, in part because of their lower cost but also because they can be adopted as bespoke models that focus on particular fields or functions.
This means that they can perform certain tasks well on industry specific data in a way that would not be cost effective for large language models. Better functionality and reliability, combined with a desire to see a return on any investment, have led to an expectation of growing demand for small language models at twice the rate of demand for all-purpose large language models. Should the trend continue, a more diverse landscape for artificial intelligence development is likely to emerge
We need to move on from the dreadful stamp duty system (The Times)
Stamp duty can be described as a tax that is complex, disincentivises purchases and house moves, reduces housing supply and increases rents. How would the lost revenue raised by stamp duty be replaced if the tax was abolished? Perhaps the answer is a reformed council tax charge based on the actual current value of property, without the current cap that ensures the most valuable properties are never charged at a rate that is more than three times that charged on the cheapest properties.
The problem with taxing the rich (FT)
The wealth of the super-rich has increased considerably since Forbes published its first list of billionaires in 1987 and there is a feeling that they ought to pay more tax. However, when in most developed countries, the largest shares of tax revenue are raised by sales and income taxes, and much of the wealth of the richest is invested in assets, taxing wealth is not straightforward.
Attempts to do so tend to lead to changes in behaviour. The history of wealth taxes suggests that they are of limited success and of the nations that have introduced them, few have retained them. Where they still exist, they raise little revenue.
While the UK has dismantled its ‘non-dom’ tax regime, other countries are seeking to attract the very wealthy – and for a government looking to extract more from the rich, there are numerous problems. How do we identify the very rich? Are they millionaires or billionaires? Are those whose homes have gone up in value and have more generous pensions than more recent generations the ‘very wealthy’? Such people are less mobile than the very richest and cannot move their wealth, so are easier to tax – but are they ‘super-rich’?
Some recommend a global asset tax on those with a total wealth of more than $1 billion, but asset taxes are very difficult to administer and enforce – and arguably discourage wealth accumulation and therefore economic activity. Others favour an ‘exit tax’ for those taking their wealth abroad. With ageing populations and increasing welfare costs, governments will continue to struggle with the question of whom to tax and how much, but while reform is needed, some argue that the narrative around tax and wealth needs to change.
Airlines fear carbon tax as flagship climate scheme develops holes (FT)
Corsia, the UN-backed Carbon Offsetting and Reduction Scheme for International Aviation is running low on the carbon credits that airlines in participating countries (of which there are 130) must purchase (unless they procure sustainable aviation fuel instead, which is in very short supply). Such credits cannot be used by governments to meet climate goals once they have been used by airlines, so there is little incentive to sell them. Airlines are now concerned at the possibility that on reviewing the performance of the market-based scheme, the European Union will extend a carbon tax on flights within the bloc to external flights. Some organisations predict a continuing shortfall of available credits, and rising compliance costs. Iata, which represents airlines, is calling for greater availability of credits, while some countries have yet to commit to fully participating in Corsia, which is supposed to be mandatory for all members of the UN’s International Civil Aviation Organization:
My job interview with an AI recruiter: at least there was no small talk (The Telegraph)
What is it like to be interviewed by an AI bot and why are some companies conducting first round interviews using artificial intelligence? For companies, there is a saving of time now that they receive so many applications for each vacancy (some of which are produced by AI), but the results are ‘mixed’: for instance, artificial intelligence cannot distinguish between genuine responses and those being read from a script. Some interviewees found the questions to be more worthwhile and relevant to a role than those often asked by junior HR staff in a first round interview. Some – particularly technology enthusiasts – quickly found talking to a machine to be less awkward than expected. The technology is in its infancy but some version of it is likely to play an increasingly significant role in recruitment.
The Centre for Enterprise, Markets and Ethics is pleased to announce the appointment of Revd Dr Philip Krinks as its new Director with effect from 6 October 2025.
Richard Turnbull, who served as Director until April 2025, will remain with the Centre as Director Emeritus.
Philip will bring a wealth of experience, knowledge and expertise in both business and theology. He is the ideal person to build on the solid platform laid by our Founding Director, Richard Turnbull in leading the work of the Centre.
I am deeply grateful for the opportunity to serve as Director. I am committed to building on the foundation laid by Lord Griffiths, Richard Turnbull and the whole CEME team, contributing a Christian perspective to economic debates.
Our vision has never been more relevant: a competitive market economy based on high ethical standards, where everyone can contribute with integrity to prosperity and the common good.
Over the coming months I look forward to engaging with CEME’s stakeholders and supporters – from economists, policymakers, and theologians to church leaders, entrepreneurs, and the business community – as together we advance this work.
Philip Krinks has a background in the academic study of enterprise, ethics and theology, in church ministry and in business consulting.
He read Classics and Philosophy at Magdalen College Oxford, and completed the management training programme at Citibank in London, before working in the Citi Foreign Exchange Sales & Trading business.
In 1998 he began a connection with Boston Consulting Group (BCG), which has lasted over 25 years. This included 5 years as Partner and Managing Director in their London Office, serving as Global Head of BCG’s Metals & Mining practice and undertaking pro bono projects with HM Treasury and the World Economic Forum.
In 2012 Philip left the BCG partnership to train for ministry in the Church of England. Subsequently, he served for 5 years as a Church of England Vicar, as Chaplain to the Bishop of Winchester and as Executive Director of the international social enterprise Pepal Foundation.
In addition to his Oxford MA, Philip holds an MBA from INSEAD, a PhD in Ethics from the University of London and an MA in Theology from King’s College London. He has published scholarly work on enterprise, ethics and theology.
I am delighted that Philip Krinks will succeed me as the Director of CEME. He will bring unique gifts and have unique opportunities. CEME was a remarkable vision that was in Lord Griffiths’ heart for many years. What a joy it was to bring that to fruition. We have built a great team and I know that they too will welcome Philip with open arms.”
Richard Turnbull is not an easy act to follow. But with a background of classics, philosophy, ethics, theology and the Church as well as practical experience in the world of consulting and financial trading, Philip Krinks is ideally placed to lead the Centre and I very much look forward to working with him.
We have compiled some news, comment pieces and announcements that we hope our readers find interesting. In this instalment, there are stories relating to free markets and patriotism, pharmaceuticals and markets, pay growth, consumer spending, public attitudes towards capitalism and free enterprise, the environment, and artificial intelligence and the stock market:
America’s new ‘patriotic’ capitalism (Financial Times)
The American government has bought a 15% share in MP Materials, a company that aims to produce rare earth minerals, and has guaranteed a ten-year price floor for its products. This is an interesting move in a country traditionally considered committed to free markets and is likely based on security concerns and the dearth of rare minerals supplies in the United States. It is perhaps also reflective of a wider shift in thinking within the administration, towards a more mercantilist outlook – at least with regard to security – particularly in view of China’s domination of the global supply of rare earth minerals, such that the government feels that in order to compete with China, something more than free market forces alone will be needed. An implication of this is the possible emergence of a new paradigm of ‘patriotic capitalism’ – a factor that investors may need to take into account when valuing assets in future.
Britain can’t win its fight against Big Pharma (The Spectator)
Recent reports surrounding the increased price of weight-loss injections and the Health Secretary’s claims regarding drug pricing reveal some interesting trends and phenomena in the market for pharmaceuticals. One is that negotiations between pharmaceutical companies and governments naturally involve a series of overlapping but not identical interests. Another is that NICE (the government health body) has been slow to adjust the figure that it is willing to spend on drugs for the National Health Service, which naturally leads to disputes with suppliers. In addition, the manufacture and supply of drugs is heavily regulated, which means that developments are slow and market principles are heavily skewed (particularly by certain forms of purchase arrangement). In addition, President Trump’s insistence that the United States should not be paying more for pharmaceuticals than other developed nations is likely to increase prices for other buyers. Where development costs are vast and prices appear likely to change, discounts for a relatively small buyer might be hard to secure, so is reform needed to the way in which prices are agreed and drugs purchased in the UK?
Britain’s jobs market has a slow puncture (The Economist)
With wage growth at around 5% per year and inflation above the Bank of England’s target (at 3.8%), the UK could arguably benefit from a softer labour market, but recent government measures increasing the minimum wage and lowering the threshold at which employers pay National Insurance, while also increasing the rate appear to press down on demand by increasing costs for employers, particularly when hiring lower-paid workers. So far there appears to have been no increase in redundancies, but vacancy rates are falling. Some employers are passing on costs to customers but others are simply not taking on new staff, not replacing leavers, or are making greater use of self-employed contractors.
UK pay growth close to four-year low (The Times)
According to figures from Incomes Data Research, average pay growth across the economy fell to 3% for July and August, an indication of an increase in available employees and slowing demand for workers:
UK should stop investing in carbon capture for power, government adviser says (Financial Times)
The Chief Executive of Octopus Energy (and government adviser as a member of the Industrial Strategy Advisory Council) has claimed that the UK government should stop investing in carbon capture technology for energy production. His argument is that in sectors where carbon abatement is difficult, carbon capture has a place, but for energy systems it makes more sense simply to burn gas unabated in order to reduce costs. As prices fall, green technologies such as heat pumps will become cheaper and will drive emissions reductions.
America’s middle-class spending power withers to historic low (The Telegraph)
According to Moody’s Analytics, households in the United States earning between $60,000 and $150,000 annually have seen the largest fall in their share of the national economy of any income group, as measured by consumer spending. The middle class now accounts for 28% of total consumer spending (down from 37% in 2002), while those in the top 10% of earners (earning over $250,000 per year) now account for 48%. Spending by those on the lowest incomes has fallen from 12% to 9%. All of this suggests that while globalisation increased overall wealth, middle class jobs in America suffered.
Image of Capitalism Slips to 54% in U.S. (Gallup)
Americans remain more favourably disposed towards capitalism than socialism, though the positive attitude towards captialism has slipped to 54% of those polled from a figure more typically around 60%. Negative attitudes towards socialism remain constant at around 57%, as do positive attitudes at around 39%. The outlook among Republicans is largely fixed, while among Democrats, the proportion viewing capitalism favourably has fallen to below half. Americans remain overwhelmingly positive about free enterprise (81% in favour) and small business (95%), but attitudes towards big business are in decline, with 37% viewing it positively and 62% negatively.
What if the AI stockmarket blows up? (The Economist)
Have investors over-reacted to the capacity of AI to increase productivity? Are we witnessing an investment bubble based on hype over the technology’s capacity to transform the economy? Perhaps so, if returns have so far been disappointing relative to the scale of investment. Nevertheless, there have been numerous bubbles in history surrounding technologies that went on to become essential parts of everyday life (such as electric lighting). The question, perhaps, surrounds the nature of any investment bubble surrounding AI and what kind of crash – if any – might follow. Perhaps the significant determining factors are what sparks the exuberant investment (new technology or perhaps government regulations or taxes), the scale and durability of the capital deployed, the use that the invested capital is put to (whether it results in something useful to the economy more widely) and who bears the losses when the bubble bursts. On these criteria, the apparent AI bubble seems relatively modest at present – though the scale of expenditure could be enormous if one considers the need to invest in data centres to make further development possible. It is also true that politicians have fuelled investment begun by technological innovation. Perhaps the most worrying question is where the losses of any crash might fall: on tech companies and institutional investors, certainly, but with the wealth of richer households heavily exposed to the stock market, as is the case in the United States at present, there are serious implications for an economy whose growth has of late been driven to a significant degree by consumer spending on the part of the wealthy.
The Centre for Enterprise, Markets and Ethics is pleased to announce the appointment of Professor Philip Booth as Academic Advisor and Senior Research Fellow. He was previously an Associate Fellow. As part of his new role, he will be working for CEME one day a week.
Philip Booth is professor of Catholic Social Thought and Public Policy at St. Mary’s University, Twickenham (the U.K.’s largest Catholic university) and Director of Policy and Research at the Catholic Bishops’ Conference of England and Wales. He is also Senior Research Fellow and Academic Advisor to the Centre for Enterprise, Markets and Ethics.
Previously, Philip was academic and research director at the Institute of Economic Affairs from 2002 to 2016 and senior academic fellow there from 2016 to 2021. He has worked for the Bank of England and as associate dean of Bayes (formerly Cass) Business School. He held the positions of Director of Research and Public Engagement; Dean of the Faculty of Education, Humanities and Social Sciences; and Director of Catholic Mission at St. Mary’s.
Philip has written widely on investment, finance, social insurance, and pensions, as well as on the relationship between Catholic social teaching and economics. He curates the website: www.catholicsocialthought.org.uk.
His books include Catholic Social Teaching and the Market Economy; Catholic Social Thought the Market and Public Policy; The Road to Economic Freedom; Verdict on the Crash; and Christian Perspectives on the Financial Crash.
He is a fellow of the Royal Statistical Society, a fellow of the Institute of Actuaries, and an honorary member of the Society of Actuaries of Poland.
He has a B.A. in Economics from the University of Durham and a Ph.D. in Real Estate Finance from City University.
We have compiled some news, comment pieces and announcements that we hope our readers find interesting. In this instalment, there are stories relating to artificial intelligence, free trade, economic growth, employment, post-disaster reconstruction and the environment:
A new wave of clean-energy innovation is building (The Economist)
While the Trump administration has withdrawn subsidies from wind and solar power generation, there are reasons to expect innovation in green technology to continue in the United States. New energy generation technologies reduce dependence on foreign imports, which makes them popular, while the bill withdrawing subsidies from wind and solar leaves support in place for other forms of green technology, such as linear generators, geothermal energy, fuel cells and new types of nuclear power. In addition, tech companies struggling to find sufficient energy to power their data centres are investing in energy solutions, usually with a ‘green mindset’, and in some cases favour the development of small modular nuclear reactors:
https://www.economist.com/business/2025/08/14/a-new-wave-of-clean-energy-innovation-is-building
‘You will have AI friends’: Character.ai bets on companionship chatbots (Financial Times)
The chatbot maker Character.ai is a leader in creating persona-based chatbots for users to interact with. Popular with young users and with the average user spending 80 minutes per day on the app, over a third claim to have discussed important matters with the chatbot or to have transferred social skills practised on the platform to real life situations. The CEO claims that the chatbot characters will not replace ‘real friends’ but that most people will have ‘AI friends’ in the future. The company faces a number of legal suits from parents who claim that their children have suffered real harms from interacting with the platform:
https://www.ft.com/content/0bcc4281-231b-41b8-9445-bbc46c7fa3d1
How America’s AI boom is squeezing the rest of the economy (The Economist)
The development of AI is thought to be responsible for around 40% of America’s GDP growth, in spite of the sector only accounting for a few per cent of national GDP itself. Given the heavy costs of infrastructure and the rate of development, tech companies are increasingly turning to borrowing to fund their projects. As this drives the costs of energy and borrowing upwards, a slow-down in other sectors more sensitive to such price changes appears to be occurring: housebuilding, non-AI business and overall consumption are sluggish, and wage growth is weak. If a reallocation of economic resources is underway, then what will be the wider consequences be for an apparently otherwise flat economy, increasingly dependent on AI investment, should the AI boom turn to bust?
UK vacancies for entry-level jobs hit five-year low (The Times)
Vacancies for entry-level jobs in the UK have dropped to their lowest level since 2020, accounting for around a fifth of the overall market. Contract work has risen by 22 per cent since April, as organisations opt to hire workers on temporary rather than permanent contracts. Vacancies in healthcare and nursing have also suffered significant declines since April, perhaps following changes to employers’ National Insurance contributions and increases in the minimum wage:
The chancellor needs a vision. Can she find it in ‘Abundance’? (The Times)
With the difficulties faced by the Chancellor, should the previously touted vision of ‘Securonomics’, now quietly abandoned, be replaced by a focus on ‘abundance’, whereby the economy is flooded with freedom to operate and constraints on development in housing, infrastructure and energy are removed? If the government seeks to pursue economic growth, then a change in mindset with regard to regulation might well be necessary:
The $140 Billion Failure We Don’t Talk About (The New York Times)
Following Hurricane Katrina, the Federal government invested a sum for reconstruction that, when adjusted for inflation, was more than was spent on the World War II Marshall Plan to rebuild Europe or for the rebuilding of Lower Manhattan after terrorist attacks of 9/11 – yet New Orleans remains smaller, poorer and more unequal than before the storm, lacking basic services and a major economic engine beyond the tourism industry. It seems that the reconstruction lacked any clear vision or accountability, and ended up focusing on replacing what was lost rather than improvement or greater resilience in the future. The outcomes for New Orleans suggest that recovery programmes need to be radically rethought, with accountability, resilience and equity at the centre:
https://www.nytimes.com/2025/08/27/opinion/new-orleans-katrina-funds.html
Born in New York City and raised in the UK, Rabbi Benjy Morgan spent 14 years studying in the top Rabbinic training academies in the world. He is the Chief Executive Officer of the Jewish Learning Exchange (JLE), a London-based organisation which aims to teach Judaism’s relevance and deeper meaning to 21st-century Jewish youth and young professionals, so as to enable them to connect with one another and make informed life decisions.
What Elements of Covenant in Genesis are Relevant to Politics in Western Democracies Today?
The book of Genesis offers a radical theological idea: that God enters into relationship with humanity not as a distant ruler, but as a partner. The first covenants—those made with Noah and with Abraham—are not commands from above but invitations to moral responsibility and dialogue.
The Noahide covenant is universal. After the flood, God makes a commitment to all of creation, establishing a foundational moral framework for society—emphasizing justice, the sanctity of life, the rule of law, and the dignity of every human being. It affirms that every human life has value because we are all created in the image of God.
The Abrahamic covenant introduces particularity—not for the sake of privilege, but to take on a role of moral responsibility. Abraham is not given a detailed system of laws, but a calling: to build a life and legacy grounded in faith, justice, and service to others. His journey begins the intertwining of religious faith with historical purpose.
For modern democracies, this theology warns against treating politics as ultimate. The state is not God. Power must be tempered by ethical principles. A covenantal worldview calls for shared responsibility even amidst difference. It teaches that society thrives when citizens see themselves as morally bound to one another.
Is Reference to the Sacred Necessary when Using the Word ‘Covenant’?
Yes. A covenant is not just a contract between individuals—it is a three-way relationship that includes a higher moral authority. It reflects a belief that our obligations are not only to each other, but to something greater.
Even when used in secular contexts, the word ‘covenant’ carries with it echoes of this deeper meaning. It implies that life is not merely about personal freedom, but about purpose. It affirms that we are not self-made, but called. In Jewish thought, this is why obligation is often seen as more important than autonomy: because it roots us in a shared moral vision.
Trying to speak of covenant without reference to the sacred is like describing a flame without fire. It’s not necessarily about organized religion, but about the idea that life has meaning, that we are responsible, and that we are part of a larger story.
What are the Vital Elements of a Covenantal Economy?
A covenantal economy is more than just an ethical marketplace. It is built on the understanding that land, wealth, and even time are not ours absolutely—they are entrusted to us. We are stewards, not owners.
Several key principles in Jewish law illustrate this:
A covenantal economy, then, asks a different set of questions: not just ‘What can I earn?’ but ‘What do I owe?’ Not just ‘What is profitable?’ but ‘What is just?’ It places generosity, dignity, and long-term stewardship at the heart of economic life.
How Understood is ‘Covenant’ Today, and How Can it be Made More Accessible?
Today, the term ‘covenant’ is not widely understood. Yet the longing for what it represents is everywhere: people crave connection, purpose, and belonging. The challenge is to give this ancient idea modern language and relevance.
In Jewish thought, covenant is how a people survives history—not through force, but through faithfulness. It’s a structure of hope: the belief that the future is not predetermined, but shaped by the commitments we make.
We can make the idea of covenant more accessible by:
Conclusion
Ours is an age, not of cynicism but of seeking. People are no longer content with fragments; they long for wholeness. They search for meaning that binds the personal to the collective, the moral to the spiritual, the ‘I’ to the ‘we.’
Covenant speaks precisely to this moment. It tells us that freedom is not isolation, but responsibility. That identity is not exclusion, but connection. That truth is not imposed, but shared. In a world crying out for belonging, covenant is the music of relationship—the sacred bond that turns individuals into communities and life into a journey of purpose. We are not alone. We are bound—by trust, by hope, by a story we tell together.
Maurice, Baron Glasman is a political theorist, academic, social commentator, and Labour life peer, best known as a founder of Blue Labour. He is Senior Lecturer in Political Theory at London Metropolitan University, Director of its Faith and Citizenship Programme and a columnist for the New Statesman, Unherd, The Tablet and Spiked.
We are moving from an era of contract, of globalisation, of the rule of lawyers, into an era of restoration, of the nation state and of covenant: an age of borders and belonging, of solidarity rather than diversity, of weapons production rather than TV production – a time when the working class have found their voice once more and will not be stilled.
Pope Francis said in a rare moment of clarity that we are not living through an era of change but a change of era. About this he was profoundly correct. I attended the inauguration of President Trump last January and that confirmed my suspicion that the old era of progressive globalisation, mercilessly initiated by Margaret Thatcher and immaculately consummated by Tony Blair, in which markets are good, privatisation is good, free movement of everything all the time is very good, when mass immigration is good, not only for the economy but for all of us because diversity is good… all of that is over. The era initiated by the Brexit referendum is now in full swing. We have already witnessed a government, and possibly an entire great political party, grievously wounded by its inability to grasp the meaning of sovereignty and the possibilities of Brexit. The wound is grievous; it could yet be fatal. The same is true of this Labour government. If it cannot move from the contractual to the covenantal, it will suffer the same fate.
Sovereignty and Globalism, Covenant and Contract
During a change of era, concepts that were considered redundant or outdated take on a new relevance. One example was sovereignty, which was considered obsolete in the era of globalisation, but which had a durable power to influence and frame political debate during the Brexit referendum, and is now perhaps the central dividing line of politics. I divide the world between ‘sovereigntists’ and globalists, between common law and human rights.
Similarly, another concept that was considered antiquated and irrelevant, but which will play a central role in shaping the new era, is that of Covenant, which should displace contract as the primary way of conceptualising the difficulties faced by our society, in order to frame a new settlement that will overcome the underlying weaknesses in our economy and politics, and which any government must address if it is to be successful.
A covenant is a binding agreement that establishes a partnership between generations, interests and regions. It establishes legitimate and sovereign institutions which reinforce and uphold the obligations and benefits of Covenant across time and space. It binds people into a society built around the common good.
As a partnership that endures over time, no one part of the covenantal compact is sovereign: each part is essential for its functioning, being based on mutual respect and shared benefits in the form of power, responsibility and accountability.
It is not difficult to understand the power of Covenant in our polity. We are a hybrid nation, part contractual, part covenantal. For example, Parliament is a covenantal institution that is intergenerational, composed of representatives from different regions and interests. Its laws are binding unless repealed. The fuss around the Henry VIII Laws, for instance, is an indication of this. The Monarchy is covenantal and, indeed, the King as Head of State rules in Parliament, which is the source of both executive and legislative authority. The Bishops sit within it, as do the Law Lords, who, with the Attorney General, uphold the authority of the Common Law, which is also a covenantal inheritance and underwrites the authority and legitimacy of the law. We are an ancient country that is bound by ancient institutions. The old universities, self-governing corporations committed to the pursuit of knowledge, were once part of that covenant, as were the Church of England and the City of London: they are a plurality of institutions committed to the common good of the nation with specialist roles within it.
Covenant-Based Politics, Contract-Based Economy
Whereas our politics are covenantal, our economy is contractual. When the logic of a market economy has been injected into the rest of society, it continuously undermines the covenantal bonds: witness how the Prime Minister recently spoke of ‘an island of strangers’, an oddly evocative remark for such a prosaic man.
Due to the primacy of contract as a way of distributing power and authority, a very big problem has developed within our economy and society, which has now become a political problem. With the election of Margaret Thatcher in 1979, the sovereign prerogative was given to capital alone to decide on matters of strategy and investment within the economy, and this led to the degradation of work and labour – the commodification of the human being, the desecration of Creation. People felt a sense of humiliation and abandonment, which led to a polarised politics and despair.
The relationship between contract and capital has led to the domination of one part of society over another through concentration of ownership, and that is harmful for a society in the covenantal tradition. It has led to the explosion of debt, both personal and public, which is hostile to mutual dependence and leads to domination. It leads to an obscuring of the idea that we are stewards of our natural inheritance, not its owners. Covenant, by contrast, binds people in mutual obligation to the flourishing of our natural environment.
Trusts could be an existing way of conceptualising the covenantal approach to upholding the internal good of our environment, rather than its external value in the form of money. If forests, rivers and parks are endowed in the form of trusts to the care of local communities then the natural environment can be bound within the covenantal framework. If trusts were to be established for our utilities, they would offer an alternative to nationalisation or privatisation for the organising of utilities.
In practical terms, this means that capital would be required to build alliances with others, to negotiate a new settlement in which capital is important but not dominant. The changes in politics in recent years means that it needs to build coalitions with other businesses, with government and with society as equal partners in the covenantal coalition.
Capital is in some sense a shared inheritance that includes the labour and contribution of previous generations in the development of value. It is, however, fungible and privately owned and in its permanent demand for higher and quicker returns would feel constrained and limited by the obligations that Covenant demands. Capital can easily move out of relationships and start to exploit people and planet. It is a source of dynamism and value – but also of disruption and desecration. A clear example is its relationship to the elements of Creation itself, human beings and nature, which it considers as factors of production, to be used exclusively in the service of profit. In contrast, Covenant, by upholding a partnership through time, can ensure that the status and dignity of labour is upheld and the integrity of our natural environment preserved.
The covenant is built around the distinction between dependence and domination. We are all, by our nature, dependent on other people and our natural environment for our life and wellbeing. We are dependent on the fulfilment of mutual obligations and the honesty of the work of others.
Contract allows for the asymmetries of power to be reproduced and for the exclusion of the concerns of others to be upheld. Covenant, on the other hand, addresses the inequalities of power that contract upholds. It seeks to avoid the domination of any one part of society, of the economy, over other parts. This requires a new institutional settlement built around the idea of the common good, that we all benefit from the beneficial constraints that Covenant provides.
How Covenant Works For Us
Labour is in a mess and has lost the affections of its heartland voters. It is confused as to how to respond. It has little conception of how to build a winning coalition. It seems incapable of articulating what is wrong, how to change it or to speak in a language that resonates with voters.
The idea of Covenant can provide an organising principle of national restoration.
A covenant is a binding commitment to reconcile estranged interests in a decentralised institutional settlement that has multiple constituent elements:
In summary, Covenant speaks to a durable new settlement within which place, participation and work play a fundamental role.
Danny Kruger has been the Member of Parliament for East Wiltshire, previously Devizes, since 2019. He became David Cameron’s chief speechwriter in 2006, whilst Cameron was Leader of the Opposition. He left this role two years later to work full-time at a youth crime prevention charity that he had co-founded called Only Connect. For his charitable work, Kruger received an MBE in 2017. He was Prime Minister Boris Johnson’s political secretary between August and December 2019 and became Shadow Parliamentary Under-Secretary of State for Work and Pensions in November 2024.
Instead of a social contract, an imagined deal struck in the light of ‘reason’ between the sovereign individual and the totalising state, we need a social covenant. This word is difficult. Its origin is in the peace treaties and tribal agreements of the ancient Near East, adopted and adapted by the people who became Israel to explain their relationships with God and with each other, and in due course with the land they inhabited. It defines a model of political organisation that is deep in the foundations of the West, and of the United Kingdom in particular. Put most simply, the politics of the covenant is built not on reason but on love.
The meaning of the word has been well conveyed by the phrase ‘artificial brotherhood’.7 A covenant is a way of expressing and formalising the love – unconditional, unstinting, permanent – that can exist between people who are unrelated by blood. The foundational social covenant is marriage, the union of two unrelated people that forms the nucleus of a new blood relationship, a family. Other covenants, less obvious and discrete, work in the same way.
Just as families are made by the covenant of marriage, so places – human communities situated in a geography – are made by the covenants of civil society, the formal and informal institutions and associations through which the people of a neighbourhood achieve agency and belonging. Nations, meanwhile, are formed by the covenant of statehood, the mysterious complex of powers, ceremonies and institutions in which a people recognise, authorise and confess allegiance to their country.
In each of these covenants something real is acknowledged: an elemental and important thing is honoured, made safe and put to a social purpose. The goal of the marriage covenant is to make sex safe – to reduce its capacity to wreck relationships and produce unwanted babies – making it the foundation of a family. The covenant of place, the local arrangement of civil society, honours the land, and makes on a patch of earth a community that regulates and, through local economic activity, sustains itself. And the covenant of statehood, in Burke’s phrase, ‘makes power gentle, and obedience liberal’: it tames the fact of violence, the capacity of the strong to dominate the weak, and so creates a nation, which is something not merely to fear but to be loyal to, even to fight and die for.
The covenants of family, place and nation share a set of qualities. Being rooted in physical reality – sex, land, violence – they reflect the nature of things, and thus transmit the ordinary affections that people feel towards their family, their neighbourhood and their country. Crucially, though, they create communities of difference. A covenant is essentially heterogeneous. This is true in marriage, where the partners come from different families and each bring their own idiosyncrasies and identities to the creation of this new thing. It is true in neighbourhoods, which are naturally diverse: as Andrew Rumsey has pointed out, the Greek ‘paroikoi’, the word from which we derive ‘parish’, means someone outside the household, a stranger to the people. The parish is a community of the unrelated, with an obligation to the outsider. And the same goes for nations, or at least this nation. The British are bound by something quite other than blood; ours is a civic not a racial nationalism, an ‘artificial brotherhood’ forged by centuries of peaceful enjoyment of the common inheritance to which all newborn citizens, whether ethnic Saxons or Afghans, are equal heirs.
The heterogeneity of a covenant is resolved in a further quality. A covenant, unlike a contract, does not simply force competing interests into a legal arrangement by which each expects to profit, and in which each remains essentially an adversary. A covenant aligns interests, including the interests of those who are not direct parties to the arrangement, such as future generations or the natural world.
The essential difference between the ‘social covenant’ we need and the ‘social contract’ we derive from Hobbes and Locke is that the relations of a covenant have the quality not of choice but of givenness. A covenant is not created by your consent, but sustained by your assent to it. You join something that existed already – this is so even in marriage, where you join ‘the married state’ whose terms and conventions, and indeed the form of the ceremony that admits you to it, are laid down in advance. Indeed even in marriage, where the relations begin in choice, the choice takes the form (at least in pretence) of an assent to the only choice that is really possible: a yielding to the compulsion of love.
The meaningful choice in all these covenants is not whether to enter but whether to leave them. You are always free to change your nationality, leave your neighbourhood or divorce your partner. But the expectation is that these are commitments that matter, and indeed they keep their hold on you even if you walk away. The covenant itself might be broken but the thing it makes – the family, the community, the nation – endures, with you part of it. You can never entirely renounce the land and place of your birth, and a divorce does not cancel the responsibility you have to the person you once loved and promised to care for, and certainly not to the children you made together. A covenant is not conditional, like a contract, where one party can renege if the terms are broken. It is an ‘artificial brotherhood’. Like a blood relationship it cannot be undone, and where there is a permanent breach there is lifelong regret.
The covenant gives us a common conception of the good, a language in which we can understand each other and a sense of collective endeavour towards a better world which we can all imagine. And it gives to each individual the proper ground of personal freedom: it is the ‘strong base’, in the words of the child psychologist John Bowlby, for ‘bold ventures’.
We have compiled some news, comment pieces and announcements that we hope our readers find interesting. In this instalment, there are stories relating to artificial intelligence, free trade and the environment:
Robot bricklayers that can work round the clock coming to Britain (The Telegraph)
Following success in the Netherlands, robot bricklayers will be tested on building sites in the UK as of next month in an attempt to address a shortage of bricklayers. The machines work at a similar rate to a human bricklayer with a predictable output, and two machines can be supervised by one human, who need not be a bricklayer. The contractor using the robots does not believe that the machines will ever fully replace human tradesmen
The AI job cuts are accelerating (Financial Times)
Tech companies appear to be cutting jobs. In the past when companies laid off staff, this was considered regrettable; now, in some sectors, it is considered a sign of progress. Artificial intelligence is not the only reason for this but it seems to be making certain roles obsolete, in spite of claims that it is redesigning rather than replacing jobs. What does it mean for traditional career pathways when entire rungs on a career ladder are disappearing? Will university degrees retain their value? And will ‘leaner’ companies necessarily be better? They might be more efficient and perform well financially, but what will become of creativity, customer service and resilience when shocks occur?
The world court joins the fight over climate change (The Economist)
The International Court of Justice (ICJ) in The Hague has issued an advisory opinion that appears to make environmental protection an issue of human rights protection, which would oblige states to set ambitious targets to protect the environment, regardless of whether they have signed up to treaties for this purpose. Failing to protect the environment adequately, for instance when states subsidise the production of fossil fuels or fail to rein in polluting companies, could constitute an internationally wrongful act, thus rendering nation states liable for environmental harms and potentially subject to claims from countries who consider themselves to have been harmed by climate change
The remarkable rise of ‘greenhushing’ (The Economist)
Companies used to be accused of greenwashing. Now they might be described as engaged in greenhushing. Headlines suggest that business has turned against the fight against climate change but surveys indicate that relatively few have actually reduced or abandoned climate targets, while most have either adhered to their own pledges or enhanced them. The difficulty is that where targets have been diluted or abandoned, this has occurred in sectors central to mitigating climate change, while political influences in some countries, particularly the US, render it more difficult for businesses to pursue – and openly announce – climate goals
The humbling of green Europe (The Economist)
Has Europe passed the high watermark of climate action? Governments recognised as moderate or centrist now seem to be turning away from climate mitigation. While European public opinion still considers the environment important, other concerns, such as the cost of living and defence have led to the climate falling down the agenda, particularly given the costs associated with net zero targets. A further problem is that while progress so far has been encouraging, it has focused largely on industry and energy generation, in the form of carbon trading markets, for example. Further measures will fall on ordinary businesses and households and may meet with greater resistance. One approach to encouraging people to see climate regulations more positively would be via simplification or relaxation of rules, or providing the means for states to favour businesses that invest in green technology – but lifting red tape and providing governmental support are criticised for potentially allowing more environmental degradation and imposing further costs on consumers. Another approach is to allow flexibility in schemes that exist, so that areas struggling with reform are given more time to meet emissions targets as other sectors decarbonise more quickly
The climate needs a politics of the possible (The Economist)
It is one thing to state ambitious climate targets and enshrine them in law but another actually to meet them. How can this be achieved given the costs and the rising scepticism among individuals about whether strict targets and green measures are either in their personal interest or actually achieve any clear benefits? Perhaps the answer is a combination of taxation or charging for pollution (where this is not too unpopular), subsidies for avoiding pollution in the first place (and the removal of subsidies for polluting industries) and measures to ensure that change does not fall too heavily on ordinary people, perhaps by providing the means and infrastructure to make desirable changes possible for them
The hidden net zero tax crushing British industry (The Telegraph)
Introduced to disincentivise emissions when the carbon price fell during an industrial slump, the ‘carbon price support’ remains in place over a decade after its introduction and is now over four times higher than when first mandated (now £18 per tonne, up from £4.94 in 2013). Since it applies to gas as well as coal, and as gas power stations set prices for energy markets, this has serious implications for industrial costs and domestic energy bills. Other features of the UK’s carbon trading scheme has led to complaints of upward pressure on costs and an inadequate supply of alternative sources of energy for industrial users, resulting in a lack of competitiveness with overseas businesses that do not face the same charges
American businesses are running out of ways to avoid tariff pain (The Economist)
According to some estimates, American businesses are absorbing up to three-fifths of the costs of recently imposed import tariffs rather than passing them on to customers, but many are looking for ways to lighten the impact, whether by stockpiling goods, adjusting supply chains or shifting manufacturing so as to import from other locations, or seeking rulings on where goods produced across various locations will be judged to have been imported from
