To judge from the reactions to Jeremy Corbyn’s #BuilditinBritain speech, the Labour leader has transgressed some fundamental law of decency. I heard him called an “economic nationalist” a “dog whistle racist” and a “Trump acolyte” yesterday – and that was before he’d even made the speech.
On Twitter, the hysteria was loudest from those with #FBPE (Follow Back, Pro-EU) in their handles; while among economists it came from those who’ve staked everything on the failed model of free markets, low wages and financial deregulation.
For once, I was glad to see the anger. It means that those still clinging to the economic model that almost destroyed the world are moving past the denial stage. Corbyn’s campaign – though it still lacks a detailed industrial policy to make it a reality – is a vital component of the strategy Britain needs in order to survive the next ten years.
It’s based on the understanding that the old model, adopted under Thatcher, is broken. That, ten years on from Lehman Brothers, the rules-based multilateral order is falling apart. As countries now compete for the meagre growth projected over the next three decades, any policy elite that remains wedded to offshoring jobs, growth, knowledge and prosperity to the emerging world is going to be overthrown.
In a deglobalising world, acting if nothing’s changed is like standing in a trench that’s been overrun. No matter how much it hurts your pride, the logical thing to do is retreat to the second trench and defend that.
The howls of anger are coming loudest from people who share a fundamental misunderstanding of what globalisation is. Globalisation looks like a spontaneous product of networks and connectivity: an objective process. But it is, and always was, a policy choice.
It took ten tough years of IMF coercion to impose free markets on the global south, and class struggle in the developed world, and then another decade of turmoil and outright theft to introduce them in Russia and Eastern Europe. The ten point “Washington Consensus” document produced by economist John Williamson in 1989 was not a description of some spontaneous natural event. It was an instruction manual.
The most fundamental instability it created was not financial, but in the trade and debt dynamics of the world, where massive and unsustainable “global imbalances” emerged in the early 2000s. As French economists Florence Pisani and Anton Brender have shown, the only possible way in which the imbalances could be reversed was the 2008 financial crisis.
As a result of the measures taken after the crisis, the the total of the world’s current account surpluses and deficits fell, from nearly 6 per cent of world GDP in 2007 to 3.25 per cent. The effect was a mild deglobalisation. Capital has begun to flow less freely and to pool more into national and regional markets; technology protectionism has seen “national champions” created in China, closed off from competition with their Western equivalents.
Then, in 2016, the election of Donald Trump killed off the planned treaties that would have extended globalisation: TTIP with Europe and TPP with Asia. Trump’s policy is (as I outlined here previously) to disrupt the world’s trade architecture and rebuild it with America as the emperor and most other countries as obedient vassals.
As a result, the true choice facing every country is not whether to defend globalisation or ditch it. The dilemma is what to do about its fragmentation. Unfortunately, British political discourse is dominated by people who refuse to face this fact, above all the hard Brexiteers who want to launch Britain into a global free market which no longer exists.
In this context, Corbyn’s strategy, of using state purchasing preference and industrial policy to try and revive a national manufacturing sector and bring jobs onshore, is sensible. In the first place, it’s what powerful industrial countries inside the EU already do. If Britain were not leaving the EU, it is what a Labour government would have done anyway.
Pegging the proposal to the pound’s weakness after Brexit was inopportune: the pound would rise if the policy were successful and what Corbyn wants to do would most likely be allowed inside the EU. But the policy itself is sound. It would have made sense without Brexit; it makes even more sense if Brexit happens.
Only 21 per cent of our economy is industry, the rest being services. Though all developed countries will see that number fall over the next century, there is significant variation across the G7: Germany is a prosperous, stable, high-welfare country for numerous reasons but one of them is that 28 per cent of its GDP comes from industry, and high-value industry at that.
What do you gain by shaping the economy to stimulate investment in manufacturing jobs and plant? First, national security. We live in a world where the danger of conventional war has risen. We may need to increase defence spending from 2 per cent of GDP. Leave aside all other benefits of making military equipment in the UK: if someone sinks half our navy, then not having a resilient steel industry or a versatile shipbuilding sector is a big problem.
Second, you revive what economists Gary Pisano and Willy Shih (2009) have called the “industrial commons”. When there’s a thriving industrial culture in a country or region, you get spillover effects that everybody benefits from but nobody owns. In Manchester in the 1960s it was said you could go into the street and whistle for a mechanical engineer. Today, in an ideal world, you would be able to whistle for a skilled genetic engineer, or specialist in virtual manufacturing or nanotech. But decades of neglect, in which neither Labour nor Conservative governments practised industrial policy, have depleted Britain’s capacity to create these positive spillovers.
Third, you get a more balanced economy. Nobody on the left is proposing trade protectionism – though having an industrial base will come in handy if the rest of the world descends into a trade war.
Finally, and this is what makes Labour’s new slogan a genius move, you connect with what is positive in the nostalgia so many voters feel for the age before Thatcherism, when there were thriving, stable communities and enough decent jobs.
Of course there are downsides. Wishing for an industrial policy is not the same as having one. Having one is not the same as executing it. In a world where protectionism is growing, some global companies will recast themselves as national champions, and investment decisions will become intertwined with geopolitics.
But all this means that governments have to send clear signals to make meaningful change. And that’s what #BuilditInBritain does. And with automation, boosting the industrial share of GDP does not necessarily mean more jobs. But it does raise GDP and exports and it keeps you in the game everybody wants to be in, and in which Britain is falling behind.
In a fragmenting global order, where the old British model of financialisation, low wages, deregulation and offshoring has ceased to function, the sensible thing to do is design a new strategy.
There are some real economic nationalists emerging on the left and to them I would give the same warning as Keynes did at the London Economic Conference in 1933: even if you hate the current world order, don’t wish for its chaotic collapse – you will like that even less.
To defend what was positive about globalisation we need a controlled, limited and reversible retreat from it. Requiring British warships to be built in Britain, creating a resilient industrial skills base and boosting domestic green energy is not economic nationalism. It is what the Tories used to be famous for, but have abandoned: common sense.