How Can We Save the British Economy from Third Rate Status?

Britain’s problems today stem in large part from an over-reliance on the troubled financial industry and massive de-industrialisation.

Paul Mason, Newsnight’s economics editor, notes that “under Labour, Britain lost 1.3m manufacturing jobs.”. Such problems were neglected by many who were indifferent to the need to reorganize the economy in a fundamental way or didn’t know how to do so. Deconstruction by the left, piecemeal tinkering by the centre, and laissez-faire economics by the right all failed. The result was a crisis and economy addicted to economic activities which could not sustain a robust middle class.

The British economy leans heavily on a defence industrial base, which – given the logic of economies of scale and mercantalism – leads to arms exports. These exports won the UK some ‘friends’ in the short term, but ultimately threatens to devalorise Britain’s good will and soft power alike. The ethical problems attached to such exports are one thing to consider.

Another issue is whether British talents are urgently needed somewhere else. The reliance on a shrinking welfare state to take care of those cast aside by an irrational policy of benign neglect of the industrial base threatens to push more and more UK citizens towards the kinds of living standards we associate with a struggling, developing nation. Ironically, many African and Latin American nations now do better than Britain in terms of growth.

Slowly, leaders in the UK have realized that the country needs to reindustrialise. Several questions can be asked: Is this going to be too little too late? What’s the best way to reindustrialise? How can you build a manufacturing economy on shattered foundations? Reindustrialise to what? There are answers out there to all these questions as well as political barriers to realising the solutions. One hopes that necessity becomes the mother of invention.

Starting first with the question of scale, we have to distinguish between cosmetic measures or public relations gimmicks and what would constitute a more serious plan. When leaders start talking about simply ratcheting up exports of automobiles, you should start to worry.

First, the automobile market is highly saturated, with new competitors expanding sales: ‘Data provided by the International Organization of Motor Vehicle Manufacturers (OICA) shows that total world auto production increased by some 16 per cent over the period 1997-2009 to 61.7m vehicles. Vehicle production in the USA, Japan and Europe represented 77 per cent of global production in 1997 but this had declined to around 50 per cent by 2009, whilst production in China had risen from 3 per cent of the total in 1997 to over 22 per cent in 2009.’ While some countries have seen a rise in demand, the next oil spike will complicate this “bright spot” considerably.

Second, ‘Climate change and the need to reduce carbon emissions is having an impact, leading to the demise of the ‘gas guzzlers’ which have been such an entrenched feature of the US domestic market, but also creating a whole new breed of cars based on alternative energy sources and leading-edge R&D.’ Yet, to capitalize on such markets requires far more long-term thinking, big investments and a national R&D policy. With the UK lacking any real national champion in the auto industry, the path of least resistance will be cheerleading transnational plants rather than building up a new domestically-anchored sector.

Turning next to the problem of how to reindustrialise, the UK is fortunate to have some of the world’s leading thinkers who are experts on this problem. The central issue is to promote an industrial policy that helps domestically-anchored firms enter new and emerging sectors. The criteria for what makes a successful industrial policy has been clearly laid out, but politicians are not always keen on adopting formulas that work technically but may be politically risky. For example, research shows that having a government agency partner with a firm is a good way to promote a local market, extend technology transfer and exchange research information. This of course rules out privatising the government and letting a foreign firm deliver services. Such short-term thinking behind privatisation has long plagued the UK economy.

When it comes to how to support the primitive accumulation of manufacturing prowess, there are several ways the UK can rebuild its shattered foundations. The first step is to start to think seriously about converting and diversifying the defence and petroleum-dependent industrial base. The military economy represents a somewhat domestically-anchored, yet high tech series of enterprises, that could help jump start a serious reindustrialisation move. Of course, some academics, managers and politicians claimed that such diversification was impossible. The research supporting these claims was superficial, based on the wrong methodological approach and never critically engaged the engineers and managers who fought for diversification. Alternative research clearly demonstrates the possibilities and reality that Britain can diversify from military to civilian technology if it wants to. Some on the left side of the spectrum suggest that the auto sector can itself convert.

The final essential question is reindustrialise to what? As the Chinese and South Koreans have shown, part of the answer can be found in Green Manufacturing. China is leading the global race to make alternative energy. South Korea’s Green New Deal involved investments of at least $38.1bn.

The UK has a foundation for such efforts in networks to advance community-owned sustainable energy. New policies must include conversion and diversification of the defence industry as well as a renewed national green R&D and manufacturing program linking procurement agencies, universities, manufacturers, trade unions and domestic anchoring systems.

The Green New Deal is essential for such alternative plans as are new networks of economists who can advocate, explain and design such plans. By supporting a shift of citizen resources into new kinds of banks and financial institutions that back green manufacturing, technology and jobs, social movements can gain new allies, solve pressing problems and escape political logjams.

Jonathan Michael Feldman is Associate Professor at the Department of Economic History, Stockholm University and Principal Convenor of the Global Teach-In: www.globalteachin.com.

This article was first published on the Global Teach-In Website. References for the quotes above and the original article can be found at http://www.globalteachin.com/global-teach-in-uk.html.

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This post was written by Jonathan M. Feldman