6 September 2023

The great crack-up

We inhabit an economy too small to deliver the social goods British people expect.

Illustration by Klawe Rzeczy

What was the point of August? The Westminster policymakers and hacks who fled to coastal refuges and fat books of fiction, and who return now pink and slightly dazed by days of azure seawater and garrulous outdoor meals, find a domestic British political scene little changed over the month.

Rishi Sunak, still struggling with the Johnson/Truss inheritance, promises angrier attacks on Labour but is trapped by history: in the case of the crumbling school buildings – the budget for replacing which he halved as chancellor – his own. Nadine Dorries, after disgracefully refusing to go, attacks him for leading a zombie government. Boat people, having failed to notice Suella Braverman, keep coming.

Labour watches and – one hopes – throbs with anxiety about what it will probably inherit next year. Its leadership spent much of the summer in Scotland, prodding at the troubles of the SNP and waiting for the Rutherglen by-election. Across British politics since July, fundamentally, the dials haven’t shifted.

But the point of August is perspective – having the time and space to see the bigger picture hidden by the clattering Westminster treadmill of business-as-usual, the endless distraction engine of the parliamentary news cycle. Sometimes you need to get further away to see things clearly.

And right now, that bigger picture suggests a storm is coming. Look at the deadly productivity weakness of the UK economy and at the likely overseas shocks still ahead from a US haunted by Trump, from Russia’s war and from global warming. Those of us who had vaguely expected a return to “normal” politics, with a competently centrist Labour government replacing an apologetically centrist Tory one – well, we’d better start thinking again.

There was one piece of significant good news. After revising its figures, the Office for National Statistics concluded that Britain was not, after all, the worst-performing economy of the rich nations; that our growth rate may in fact have surpassed Germany’s; and that the economy returned to the same size as it was before the pandemic almost two years ago. This is good news because countries can talk themselves into despair and decline.

Yet the tough truth remains that we inhabit an economy too small to deliver the social goods British people expect, and with a terrible productivity record over the past two decades. The English schools crisis is a good example of the consequences of relative economic failure. That so many were constructed out of something that appears to be closely related to Aero chocolate bars is not particularly surprising: lots of technical and construction errors have occurred in recent history. What is noteworthy is that the problems were spotted early but dealing with it was endlessly put off, most recently by Sunak, until this autumn’s crisis.

Again, bending over backwards to be fair, one can see why. No one had died. The pressures for immediate spending – this pay-dispute, that glaring injustice – are infinite. Would another year or two of prevarication about a problem the public were not discussing, or even aware of, make so much difference? But this is just what happens inside a state which is, itself, atop an economy too small: big long-term investment decisions are delayed because of the battering of the here and now. Right across the public realm, we all know the outcome. It isn’t just the schools that are crumbling: Britain is.

But getting to a bigger economy that can fund a bigger public realm will be very difficult. The shadow chancellor, Rachel Reeves, says, quite rightly, that she wants to do “whatever it takes” to win investment in green jobs from firms that are also being wooed by the US.

But her problem is scale. The $369bn of Joe Biden’s Inflation Reduction Act is more than ten times bigger than Labour’s promised green-revolution investment, which has in any case been postponed. The EU’s “Green Deal” industrial plan is around eight times bigger than the putative Labour plan.

And scale is just the start. The US benefits from much cheaper energy because of its fracking industry, and its entrepreneurs enjoy access to much deeper resources of capital. The problem of setting policy for a relatively small nation outside the local trade bloc, in a world dominated by giants, has never been more obvious.

Whether it is the Conservatives stumbling on without a vision or Labour willing the ends but without the means, there seems no political route to faster British growth in the short term. And that, in itself, will produce a further era of political turbulence none of us are talking about yet. Previous periods of British economic failure, whether the interwar depression, the stagflation of the 1970s, or the period after the 2008 financial crash, were all followed by severe political storms – the utter destruction of liberal England; the radical anti-statist economics of Thatcherism; the twin revolts of Corbynism and Brexit. Why, should the mid-to-late 2020s be any different?

Yet we have a haze of a grey, tepid politics-as-usual hanging over the archipelago. After the Truss experiment, the Tories have retreated from any bold ideas about the future, while it is very much in Keir Starmer’s interest not to panic anybody – a reassuringly stolid, “yer da” journey to power. He and Reeves pride themselves on being the “grown-ups” now.

Meanwhile, the Westminster machine retreats to chatter about largely meaningless reshuffles, performative bilge about small boats, and a decadent and ludicrous focus on transgender politics. It feels like chatter, chatter, chatter as the storm builds.

Brexit is part of the conversation that the “new normalcy” in British politics refuses to have. One part of the coming political storm is that a radical rethink of our relations with the EU cannot be long avoided. A further Tory government, presumably with a small majority, would again be held hostage by Brexiteer extremists; Team Johnson would – of course – try to come back; and the trading problems faced by the British economy would dramatically worsen.

So would Labour try to deepen trade ties? In a recent book, What Went Wrong with Brexit, the FT journalist Peter Foster makes a good point against those in the party hoping Brexit will, as it were, keep quiet: “Those arguing that the politics will be too hard, that this should be a ‘second-term issue’ if Labour are elected in 2024, overlook the fact that that would mean five more years in which supply chains will reorientate, investment will drain away and diplomatic and people-to-people relationships between the EU and the UK will continue to atrophy.” For reasons of economic necessity, we are going to end up as rule-takers; it’s just a question of how quickly the penny drops.

But there are harder choices still. Harry Lambert has made a very forceful case in these pages for the need to look again at wealth taxes, in the light of the huge asset bubble that followed the Bank of England’s quantitative easing experiment. That created a generational – and geographical – unfairness in the current system which cannot forever be ignored. Yet, like Brexit, this will involve a future Labour government in great and bitter controversy. It needs to be done, but there will be plenty of losers too.

Then there are the things entirely outside a future British government’s control, but which will massively shape the decade ahead. All summer I have been watching with horrified fascination the steady advance towards the second presidential term of Donald Trump. He wades through prosecutions like Godzilla through Japanese fishing villages. Who’s going to stop him? It is prudent, nothing less, to assume that he could make it – and to adopt the brace position. A second Trump presidency would end the Ukraine war, one must assume, on Russia’s terms and hugely endanger European security. It would also rip America in two, ending definitively the century-plus of US global dominance. Thinking about the consequences for an independent UK – and, for instance, how much it invests in defence – rather than becoming obsessed by the Westminster agenda, is not hysterical.

The same goes for AI. Before the Westminster break, Tony Blair insisted to me in an interview that artificial intelligence was the biggest thing going. He’s probably right, but I wonder if he underestimates the political consequences. A study by Princeton University’s Professor Ed Felten recently predicted the jobs likely to be taken out by AI early on; the most at risk included lawyers, professors, teachers, judges, financial advisers, estate agents, bank workers, psychologists and human resources and public relations workers.

Historically, it is when the educated middle classes find themselves economically adrift that the real political mayhem begins. Writing for the Atlantic, Ross Andersen recently pointed out that America is still being divided culturally and politically by deindustrialisation – it’s a big part of the reason for Trumpism – and this is true across the West, as once-dominant economies lose manufacturing heft to China, Vietnam and India.

But what we have seen so far might be as nothing compared to the turbulence the AI industrial revolution will bring: “It’s hard to imagine,” says Andersen, “how a corresponding crisis of meaning might play out for the professional class, but it surely would involve a great deal of anger and alienation.” From 1789 in Paris to the fascist revolts and Marxist revolutions of the last century, it has been not angry peasants or industrial workers who upended societies but educated, then disappointed, bourgeois elites. Are policymakers inside the big parties and Whitehall thinking about this?

There is one part of the big-order threat in the decade ahead that clearly cannot be dodged. Evidence continues to pile up of Tory enthusiasm for weaponising environmentalism in all its forms against Labour. Keir Starmer, I think, knows that this is a fight that cannot be dodged: if the Tory election gurus genuinely want to imply that net zero is a middle-class frippery, or even that, as the Republicans in the US increasingly argue, climate change is a scientific fraud, then Labour’s response must be three-word simple: bring it on. Yet again, in making it easier to build onshore wind farms, the Conservatives are borrowing Labour policies. And the more Labour focuses on near-at-hand solutions to higher temperatures, greater storms, rising sea levels, the better.

The British state, surrounded by perils, is not impotent. The UK remains by world standards a relatively powerful second-order player. Nor is it always the case that radical problems need radical solutions; sometimes radical solutions can make the problems worse. But looking ahead, we are going to need, almost for survival, a strong and decisive state – national political leadership willing and able to take big decisions, to confront strong and hostile lobbies, and to provide a consistent, self-confident government.

A period of weak growth, low wages, and technological and geopolitical shocks that impact some of the most influential and vocal parts of society is unlikely to bring us a time of political calm. Apart from changes to planning, education, tax and the Brexit deal, we may see irresistible pressure for fundamental changes to the state itself, which has staggered on, relatively unreformed, through decades of decline. Over the course of the summer, I heard interest in the idea of federalism returning – a radical remaking of the relationship between Westminster, England and the other nations. This is probably an outlier, but it’s an example of the big thinking Britain is going to need.

What is most worrying about our tepid political mood at the fag-end of summer is that it may lead to either a hung parliament or to a narrow Labour government. Right now, we need a prime minister with a powerful, decisive majority, not in hock to party factions, or endless deal-making. And, as the political world staggers back from its break, we are a long – long – way away from that.

[See also: Can Labour inspire hope?]