Britain has a chance to reinvent itself and rethink its national strategy in a world that has been transformed more in the last few years than in the generation after 1989. The transatlantic West once again inhabits a world of cold-war blocs, managed trade, sanctions, embargoes, arms races and proxy wars.
Policymakers in London should not worry too much about instability in Washington. The shift towards strategic trade that began under Donald Trump became a bipartisan consensus under Joe Biden. If Trump is re-elected, he will not pull the US out of Nato. And his proposed “global tariff” on all imports, if it went from rhetoric to reality, would be a bargaining chip, to be lowered in bilateral or multilateral negotiations with allies. Anglo-American strategic cooperation in security and intelligence will be maintained, if not deepened, no matter which party wins the White House.
In the areas of trade and investment, the new geopolitics will limit the options for the UK. Brexit and the earlier decision to stay out of the euro are unlikely to be reversed. And the idea of a buccaneering, free-trading Global Britain is irrelevant after the demise of globalism, even though the UK should seek to export goods as well as services to markets around the world.
British industry needs the aid of economies of scale which can only be exploited if Britain is part of a larger economic bloc. Britain’s best option is an economic equivalent to Nato that includes both the US and EU. The second-best alternative would be British membership in an Anglosphere trading bloc that included the US.
During the first Cold War, America’s East Asian allies, Japan, South Korea and Taiwan, carried out policies of national economic development that combined the fostering of selected national industries and national champions with exports to the more open markets of the US and western Europe. Meanwhile Britain, like the US, allowed its industrial base to erode and become overly dependent on the “Fire” sector – finance, insurance and real estate. Today, the productivity of Britain is equivalent to that of Italy and Spain; well below that of the US, Germany and France. During the Brexit debate, some Remainers made the humiliating argument that the UK, once the workshop of the world, might lose its special status as a low-wage platform for Japanese multinationals exporting cars to the European market.
How can the UK reconcile the imperative of gaining access to a larger transnational market with the imperative of reducing its reliance on the financial services sector by rebuilding some, though not all, of the traded-sector industry that has been lost to offshoring? Defence production in the context of Nato and the Anglo-American global relationship is one possibility. British industrial policy might also build outward from British strengths in civilian industry such as aerospace and car-manufacturing supply chains, and pharmaceuticals.
A policy of selective reindustrialisation would not necessarily create many new factory jobs, as manufacturing becomes more automated. But the “upstream” and “downstream” industries associated with manufacturing can enable new factories, indirectly, to catalyse growth in surrounding areas.
Revitalising industry in Britain would need to be supported by a highly efficient and flexible transportation and communications infrastructure, along with cheap and reliable energy. Constraints on the expansion of renewable energy mean that fossil fuels and nuclear energy should be part of the mix.
How should a neo-developmentalist Britain pay for long-term investment in industry, infrastructure and energy? Financing by specialised, sector-specific policy banks is preferable to the direct funding of projects. Subsidies and tax breaks are often scattershot and ineffective or easily gamed by special interests, as America’s flawed and wasteful Inflation Reduction Act has shown.
A new British developmentalism should be complemented by a labour policy that gradually raises wages in order to incentivise the adoption of labour-saving technology, expand the home market for labour-saving household appliances, and reduce the need for welfare expenditure to top up poverty wages. In low-wage, low-productivity service sectors, restricting immigration can create tight labour markets that give workers bargaining power. In the same difficult-to-unionise, labour-intensive sectors, wages can be raised by wage boards, of the kind championed by Winston Churchill more than a century ago to end poverty among sweatshop workers.
In the aftermath of neoliberal globalism, the UK has an opportunity to return to its historic roots as a medium-sized great power capable of world-class achievements in production as well as invention – but only if British leaders are willing to seize the opportunity.
This article is part of the series “How to fix a nation”
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