The UK’s decline strengthens the case for a new economic imaginary
Economists are running out of answers – and the UK has little left to lose from adopting a radical new understanding of the relationship between state, citizens, and the economy
In a recent interview in Renewal following the publication of our collection The Political Economy of Industrial Strategy in the UK, Julie Froud and I were asked by Scott Lavery whether the post-2008 emergence (albeit stuttering) of muscular industrial policy in the UK might bear upon the longstanding debate around British decline.
The debate had been given fresh impetus by new essays by two of its chief protagonists, historians David Edgerton and Perry Anderson, in The New Statesman and New Left Review, respectively.
‘Decline, but not declinism’ is probably the best way to boil down the answer we gave to Lavery. In this post, I borrow from both sides of the debate to make the case for a radical reframing of the economy and economic policy — because the UK has very little left to lose.
Decline
Declinist scholars such as Anderson would find few surprises in The Political Economy of Industrial Strategy in the UK (which Froud and I co-edited with Tom Barker). The emergence of an industrial strategy within the UK has long been hampered by a finance-centred economy, underpinned by the Treasury and the Bank of England. In short, the capitalist class may once have had an incentive to support industrialisation, but since accumulation is now focused on financial intermediation rather than ‘the real economy’, have little incentive to prevent or reverse the process of deindustrialisation which lies at the heart of the British economic malaise.
The problems with declinism are threefold. The first two are articulated in Edgerton’s work. Analytically, declinism suggests that decline is a historical inevitability, because of the political and economic forces underpinning the process. Empirically, declinism overlooks periods when the British state has adopted a very different posture towards managing capitalism — including the use of conventional industrial policies.
One of the reasons this is more difficult now than in, say, the post-war era, is that the economy, including the finance sector, is now characterised by high levels of foreign ownership. This condition has of course resulted from policy (in)action by the UK government, but nevertheless, it is not credible to say that the UK’s decline derives solely from the structure of its own state institutions.
The third problem with the declinist thesis has been articulated recently by Adam Tooze: the UK’s decline is far more serious than the declinist scholars suggest. Tooze, like Edgerton, has locked horns with Anderson in the past, essentially arguing that the UK’s problems are historically contingent rather than set in stone. He argues now that the UK is experiencing a ‘deconvergence’, centuries in the making, beyond the usual cycle of thwarted developmentalism which Anderson documents.
As such, there are countries with similar macroeconomic profiles, institutions, and policies which are maintaining and enhancing their productivity and living standards to a far greater extent than the UK is capable of.
For Tooze, as ever, the empirical trumps the theoretical, and while the evidence suggests the UK is experiencing decline on most measures (relative to similar countries), to search for a singular diagnosis would be wrong-headed.
Danger
I agree with this, to some extent. To base critique purely on the British variant of capitalism overlooks, on the one hand, the many strengths and successes of the British economy, but also, on the other hand, the inherent destructiveness and unevenness of capitalism in general. Insofar as he has written about the UK, Tooze has generally been reluctant to adjudicate on the merits, or otherwise, of how the British do capitalism — a frustrating outlook for some, but surely superior to grasping for simplicity.
Nevertheless, doing nothing is not an option. The lack of a definitive diagnosis does not mean that decline or deconvergence must simply be tolerated. Yet the needle is stuck when it comes to mainstream debate about the economy. We can redistribute a little more through tax and benefit changes; we can spend a little more on health and education, or even new risks like domestic energy; we can spend more on supporting economic development beyond London and the South East; we can seek to diversify company ownership models; we can ask the Bank of England to care about things other than wage inflation (not that I believe the current government is committed to any of this). Maybe we could even rejoin the EU. But we would still need to think about what kind of economy we want to be, or how far we are prepared to go in the hope — without guarantee — of avoiding terminal decline.
The obvious thing to aim for is industrial policy. I am of course a fan. But there are many potential dangers in expecting industrial policy to set the UK economy on an alternative developmental path. Many of these issues are explored in The Political Economy of Industrial Strategy.
Simon Lee’s chapter demonstrates that the Treasury’s opposition to conventional industrial policy – especially that which might benefits regions beyond London – is real and enduring. Beyond the day-to-day tussles over budgets in Whitehall, the Treasury has consistently acted to undermine the capacity of the national and local state to shape the economy: we would struggle to do industrial policy even if we wanted to.
At the same time, the chapter by James Silverwood and Richard Woodward demonstrates that the UK has long adopted forms of industrial policy, albeit only for select industries aligned with elite interests. My own chapter, with Tom Barker, demonstrates the danger of ‘state capture’ arising from any attempt to revive industrial policy within economic policy-making processes which privilege incumbent firms at the expense of innovation.
The chapters by Julie Froud and Isaac Stanley argue that a narrow approach to industrial policy — say, generating more R&D to improve productivity — risk neglecting the social and spatial foundations which make ‘high value’ economic activity. Industries such as retail and social care (as well as infrastructure and public services more generally) are essential enablers of productivity, even if technically not themselves productive.
Matthew Bishop’s chapter focuses on trade policy in a post-Brexit environment. In addition to the economic shock of Brexit, leaving the European Union effectively undermines the UK’s ability to shape its own industrial policy agenda by detaching the UK from global production networks.
Purpose
How many of these factors should we expect to be transformed in the years ahead? There is no serious prospect of the Treasury relinquishing control, or of a challenge to the elites which have captured certain economic policy levers. Investment in social and physical infrastructure will probably remain restrained (and with relevant industries characterised by ownership models that disincentivise long-term investment). Brexit is a done deal — partial reintegration into the single market is possible, even likely, but in general the EU has no incentive to lift the UK out of the hole it has dug itself.
Even if a new government were to commit to addressing some of these barriers, we have not yet determined what we want an industrial policy for. The late Victoria Chick’s chapter contrasts 2017’s industrial strategy white paper — despite its allusions to ‘grand challenges’ — with the Liberal Industrial Inquiry of 1928. The latter establishes a clear public purpose, with industrial policies guided by a vision for improving the quality of life.
Today, we hear most often the conventional argument that greater levels of public support for high-tech industries will enhance long-term growth prospects. But if this alone was enough to arrest decline, we would have done it already — and the UK is already too far behind on many leading technologies.
There is a slightly more progressive argument about the ‘opportunity’ that climate change represents, with some evidence of a natural advantage for the UK in some renewable energy industries, but no serious plan to think through whether the economy as a whole will be able to withstand the significant climate shifts that are now unavoidable.
It has also become fashionable to claim the mantle of mission-based industrial policy, loosely appropriating the language developed by Mariana Mazzucato and others at IIPP. But social objectives in this regard remain very thinly drawn by UK policy-makers. Economic growth itself will not produce greater social equality without as-yet-unspeakable fiscal measures, and a focus on skills without much stronger employment protection will not overcome labour market fragmentation and the spread of precarity.
Similarly, a focus on the ‘everyday economy’ — encompassing industries like social care — as legitimate terrain for industrial policy is welcome, but rationalising caring industries does not in itself create space for care across economic organisation more generally.
Assets
Whatever the intent of declinist historians, declinism can primarily be found on the right of British politics — associated with attacks on the public sector or workers’ rights. It was used to great effect by the Conservative Party after 2010 to justify austerity and the restoration of a finance-centred growth model.
The paradigm shift required is not really one of policy frameworks. We should of course be thinking about which industries should be the focus of a comprehensive developmental strategy, and especially about how wider social infrastructures can support sustainable development. I believe that the state can and should do more to shape and make markets, and that economic policy can and should incorporate meaningful social objectives.
However, the conversation we need now, as the UK deconverges from both the rest of the Global North — and the cycle of discarding and discovering industrial policy becomes increasingly exhausted — is about who gets to decide what prosperity means, and what the economy actually is. What exactly is it that is experiencing decline or deconvergence?
We need not dismiss the material reality of the UK’s economic malaise — with real consequences for living standards — to acknowledge that it is at the same time a constructed condition, privileging (and measuring) a narrow range of outcomes relevant to the established growth model.
We know, for many, ‘the economy’ is a source of anxiety and powerlessness. Most people have little capacity or confidence to challenge prevailing narratives about economic imperatives, even when the same old fixes become increasingly ineffective. Some local authorities — albeit deprived of the necessary powers and resources — have started to talk about an asset-based approach to economic development (quite different from how academic political economists understand this term!), building strategies from the capabilities of citizens and communities, rather than relying on the generic ‘expertise’ of economists and consultants.
It is an approach which has faced ignorance and resistance in practice, locally and nationally, including on the left. We should also note that it is itself a defensive posture: adopted as much as a coping strategy in the face of deprivation, rather than imagined as a fully-fledged alternative to neoliberalism.
We need to go much further, imagining the capabilities we want as well as the capabilities we already possess. We need deliberation led by citizens and communities about what we want our lives to be — an assessment of future demand, if you like — and then to build the systems of production, finance, and innovation that will help to deliver it. If this sounds idealistic, read Anthony Payne and Colin Hay’s Civic Capitalism. Neoliberalism offers a fantasy of market utopia, but instead has faltered by failing to enable the production of the economic goods people actually need to live well, an anarchic veneer masking systems designed to insulate accumulation processes from the input of real people.
The status quo rests upon two pillars which are crumbling fast. The notion, firstly, that economic strategies need to be devised by the experts who alone understand the intricacies of the market has been undermined by, well, almost everything that has happened in the UK economy recently. And now, secondly, the argument that the UK – or any country – cannot embark on an alternative to neoliberalism alone is undermined by the decoupling of the UK from the global economy under the supervision of a radical neoliberal elite.
Industrial policies focused only (or mainly) on recoupling cannot succeed while we remain unwilling to address why they are necessary in the first place. It is time for something else.