As Adam Smith knew, the experts think they know best, but what do the people say?

The high-powered experts who make up the LSE’s growth commission have proposed a blueprint for reviving Britain. To achieve its goals, though, we’ll have to get rid of those blasted MPs and councillors. What say we?

What makes economies grow? You could say it is the oldest question in economics: the complete title of Adam Smith’s foundational work is An Inquiry into the Nature and Causes of the Wealth of Nations.

It took Smith nearly a thousand pages to set out his formula. This past week, an independent “growth commission” convened by the London School of Economics provided a modern answer – albeit for the UK only – in a mere 36 pages.

Not that the LSE’s commission’s report ever risked being superficial. Its authors include a Nobel Prizewinner, a former chief economist of the World Bank and the first woman to become a deputy governor of the Bank of England. And its attempt to prescribe “the institutions and policies that should underpin growth for the next 50 years” is timely. For the past four years, the policy debate in the UK has been dominated by the question of how to escape from the slump induced by the financial crisis, yet few would deny that the UK needs a long-term economic strategy as well as short-term tactics.

So what is the commission’s answer to the question of what Britain needs to do to reinvigorate its economy in the 21st century? It identifies three critical determinants of prosperity in which the UK is deficient and which policy should therefore cultivate: skills, infrastructure and innovation.

On one level this sounds like a statement of the bleeding obvious. Can you win a Nobel Prize for working out that it would be a good thing if the workforce was better educated, railways and roads got an upgrade, and if private companies spent more on research and development? Where do I apply?

But we should cut the report’s authors a bit of slack. Yes, it is unfortunate that economists’ theories of growth are formulated at such an Olympian level of abstraction that by themselves they generate only the most platitudinous of conclusions. For this very reason, however, the test of a body such as the LSE commission is whether it is brave enough to advocate more specific policies – and on this score, it does not disappoint. The constraints it has identified may not come as much of a surprise; but the solutions it proposes are more controversial.

In secondary education, the authors endorse the academy model of more autonomy and greater centralisation of funding and accountability for schools. They advocate the creation of a National Infrastructure Bank. On innovation, they back proposals for an allowance for corporate equity that would remove the existing tax incentives to finance businesses with debt, and thereby encourage risky start-ups for which equity funding is the only realistic option. These are serious policy proposals, backed by detailed argument; they deserve a serious hearing from the government.

Unfortunately, the commission makes a further, overarching recommendation – one that is not just controversial, but positively dangerous. How, it asks, did Britain get into this mess in the first place? Why did it lose its historical lead in skills, infrastructure and innovation? The ultimate answer, it says, is simple: the root of our problems is politics.

The trouble with Britain is that it allows elected politicians to make policy. Worse still, we allow local politicians a say in things such as planning and schools. And, to cap it all, we have an unfortunate habit of changing our minds and electing different parties every few years. The result is a chronically unstable environment for long-term investment. Public priorities never stay the same for long enough to get anything done, and the private sector is at the mercy of Nimbys and the political cycle.

So, if we want to make Britain grow again, we need not only to make the right policy choices, but to take those choices out of the hands of politicians. We need a “new insti­tutional architecture” that can “put politics in the right place”. Only then will we bid farewell to interminable “flip-flopping”, the inevitable harvest of “political bickering”. Economic policy will at last be in the capable hands of independent experts: an infrastructure planning commission to decide, say, where nuclear power stations should be built, and a national growth council to dispense an industrial strategy.

It is a seductive view of what constitutes economic progress – one that has bewitched well-meaning technocrats down the ages, from enlightened imperialists such as John Stuart Mill, who argued for a “government of leading-strings” for Britain’s colonial possessions, to the socialist planners charged with the instant industrialisation of the eastern bloc’s developmental nation states. If only the benighted people and their annoying representatives would get out of the way, the impartial experts could get on with modernising the country.

The reality is that policies made by unaccountable experts are unsustainable – because they do not reflect what the people want. Only a democratic process, however flawed, can do that.

The LSE commission’s report was published in the same week as it was announced that it will take 20 years to complete the High Speed 2 rail link, in large part because of the need to follow time-consuming planning procedures. Such is the price of a democratic economy. No doubt unelected bureaucrats handing down compulsory purchase orders could do the job in half the time. But policy would no longer be reflecting people’s interests; it would be reflecting what the experts say their interests are.

It is a critical distinction – and, as it happens, one of which Adam Smith’s Wealth of Nations remains the original exposition.

Felix Martin is a macroeconomist and bond investor. His book, “Money: the Unauthorised Biography”, will be published by the Bodley Head in June

Adam Smith. Image: Getty Images

Macroeconomist, bond trader and author of Money

This article first appeared in the 11 February 2013 issue of the New Statesman, Assange Alone

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Is the Great Fire of London a blueprint for how governments deal with disasters?

Visible leadership, an established authority, and a common external enemy: an enduring defence mechanism 350 years on.

In 1968, the science journal The Lancet ran a report into human behaviour. When populations are confronted with disaster, it recommended, effective “communications, coordination, and control, and the establishment of a recognised authority” are of utmost importance (advice that should have been heeded immediately after the Brexit result in June this year).

The 350th anniversary of the Great Fire of London this week seems is a good time to think about how we deal with disasters: over 13,000 homes were destroyed, 87 churches ruined and thousands of Londoners displaced.

For me, one of the most striking parts of the story of the Great Fire is not the fire itself nor the dramatic rebuilding programme that followed, but the state of flux in between.

When the fire broke out, England was at war with both the Dutch Republic and France. As soon as news reached France, the Venetian ambassador Alvise Sagredo, declared that the fire would be “worse than the plague and any other disaster, capable of making [the English] change their government and their principles”.

In England, even the London Gazette warned that England’s foes would try “to persuade the world abroad of great parties and disaffection at home against his majesties government”. Faced with unparalleled destruction and unprecedented disarray, how did the king, his advisers and civic authorities regain control of London?

With the Guildhall severely damaged and the Royal Exchange destroyed, the first step was to find a new base for civic and mercantile power. On 6 September, Charles II instructed the Lord Mayor and the city aldermen to resume governance of the city. Gresham College and buildings around Bishopsgate were taken over and efforts were immediately taken to re-establish trade. Vendors were granted permission to set up sheds in temporary markets at Bishopsgate Street, Tower Hill, Smithfield and Leadenhall Street.

“Honest and able persons” were selected to monitor the ruined city to ensure fire did not break out afresh, appeals were made across the country for charitable donations and neighbouring counties were called upon to provide sustenance. From the navy stores, ship’s biscuit was offered to the needy and canvas was provided so that the tens of thousands of homeless people stranded in the fields surrounding London could fashion tents.

The measures were not perfect. Visiting Moorfields, the diarist John Evelyn described, “the poor inhabitants . . . some under tents, some under miserable huts and hovels, many without a rag”.

Those stranded found food to be in short supply and many succumbed to the illnesses bred by a reduced condition in life, including aged playwright James Shirley, who died in October 1666.

But it wasn’t long before people started to disperse – either leaving London altogether, finding accommodation elsewhere, or returning to the locations of their former homes and shops to erect makeshift shacks above the ruins.

In the background, the trial and execution of French watchmaker Robert Hubert, who falsely claimed to have started the fire, provided a focus for any anger and rage.

With communication ruptured following the destruction of the London Gazette printing house and the General Letter Office, rumours of plots, arson and invasions had spread almost as quickly as the fire itself. Indeed, terrible violence had broken out during the fire, with mobs targeting any “strangers” or foreign-born Londoners. One French servant, for example, reported how gangs of “English women did knock down strangers for not speaking good English. Some of them armed with spits, some with bread staffs, and the captain with a broad sword.”

When the London Gazette was released the week after the fire – after only skipping one edition of its biweekly run – it provided readers with a detailed description of the catastrophe, emphasising its accidental nature and promoting the role played by Charles II and his brother and heir, James, Duke of York, in preventing the fire spreading even further.

Against protocol, the newspaper also allowed important tradespeople to advertise their new offices: the goldsmith-bankers, for example, informed readers that they had found premises along Broad Street.

By mid-September, the etcher Wenceslaus Hollar had already begun his survey of the city and plans had been submitted to the king from John Evelyn and architects Christopher Wren and Robert Hooke, to name just a few, as to how to rebuild the capital.

Writing at the time, Sir Nathaniel Hobart, believed that the “rebuilding of the Citty will not be soe difficult as the satisfying all interests, there being many proprietors”. As such, one of the most important innovations following the disaster was the establishment of a judiciary, known as the Fire Court, to untangle the complex web of formal and informal agreements between tenants and landlords. From 1667 until 1672 the Fire Court settled hundreds and hundreds of cases.

There were certainly many bumps along the way – for a while, the City of London was plundered and inhabited by gangs. Plus, anger towards foreign-born Londoners continued; owing to his Dutch background, one Johan Vandermarsh had to fight tooth and nail to keep hold of his property on Lime Street, despite helping to save many of his neighbours’ homes.

All of this considered, there was nothing like the widespread disorder that Charles II had feared and his enemies expected. On the contrary, the visibility of the king and his brother and heir – and the convenient suspicion that the fire had been started by an external enemy – worked to bind the people to their king and settle unrest. Although hard to believe at the time, there was also the promise of “a more beautiful city”.

Rebecca Rideal is a historian, factual television producer and author of 1666: Plague, War and Hellfire.

She will be speaking at London’s Burning festival on Friday 2 September – a contemporary festival of art and ideas produced at Artichoke to commemorate the 350th anniversary of the Great Fire of London. Free to the public, it runs from 30 August-4 September.