Former Prime Minister Liz Truss’s economic ideas may have been doomed from the start by her poor leadership.
Key Details
- Former U.K. Prime Minister Liz Truss announced her resignation on October 23 following seven weeks of chaos
- Her term marks the shortest prime minister term in the history of the U.K.
- Former Baxter International CEO and professor of management Harry Kraemer says that Truss’s failures were deeper than just her unfunded tax plan—she failed in her leadership.
- “She was talking about creating tremendous change without having an understanding of what all the implications of that change could be. And you can see where that got her,” says Kraemer.
- “In Kraemer’s view, there are four dimensions to values-based leadership—self-reflection, a balanced perspective, true self-confidence, and genuine humility. He sees Truss failing as a leader along each of these dimensions and believes other leaders can learn from her mistakes,” says Northwestern University’s Kellogg Insight.
Why it’s Important
Truss proposed her “mini-budget” of unfunded tax incentives and tax breaks on September 23 in an effort to stimulate the economy. As we reported, it caused weeks of chaos and economic turmoil in which the Bank of England raised interest rates, the pound crashed, and bond prices dropped.
The prime minister made numerous mistakes in her term but the worst of them may have been her inability to properly take charge of the situation and explain her ideas and plans in a way that would’ve kept the market from reacting violently.
“It appears Truss did very little listening and immediately embarked on a plan to significantly reduce taxes without an understanding of what the impact would be or a clear explanation for why it was happening,” says Kraemer.
“If I’m going to create a major change, I need to make sure it’s clearly communicated and that I have people onboard. If not, you end up creating significant surprise and uncertainty, which will most likely doom the project,” he says.
Backing up a bit
It is possible that Truss’s policies could’ve been made to work in the long term. She justified the mini-budget based on low GDP growth, which the current prime minister Rishi Sunak dismissed as “fairy-tale economics.” Without proper leadership though, there was no way for her to properly sell them to the British public and financial class.
“It is not controversial amongst economists that monetary tightening, not fiscal tightening, is the most effective way to control inflation. Truss’s policy is not ‘fairytale economics’ or ‘weak on inflation.’ It is the right policy mix for now and for the longer term,” says The Spectator.
National Review Online points out that her plan bares similarity to President Ronald Reagan’s economic policy but the U.S. is in a more muscular position than the U.K. An economic stimulus can work but the U.K. has more shallow pockets and needs more short-term security.
“Truss was sunk by the fact that, in an environment where inflation has now returned to the economies of the West, markets are once again acting as gatekeepers to keep debt accumulation in check,” says National Review Online.
