The lesson of 2008 is incomplete
In the wake of the 2008 financial crisis, regulators concluded that monitoring individual banks for individual risks had been insufficient. The crisis was not the sum of separate failures. It was the systemic consequence of an architecture whose vulnerabilities concentrated and cascaded at sites the existing supervisory framework was not built to see.
The response was the macroprudential turn: a recognition that system-wide instability had system-wide origins, and required intervention at the structural points where instability was generated rather than at the firm level after the fact. That lesson reshaped financial regulation. It has not yet reshaped how we govern the supply side of the British economy – and the cost of that incompleteness is the compounding crisis we are now living through.
In fact, the British state continues to operate a pre-2008 supply-side regime. It monitors individual sectors through individual regulators. It disciplines individual firms through individual licences. It transfers income to individual households through means-tested welfare. Each of these instruments is calibrated to address dysfunction at the firm or household level, while the supply-side architecture as a whole generates instability and excessive cost that none of them can stabilise.
High and volatile energy prices squeeze households while generating windfall profits at the top of the supply chain. Water companies extract while services deteriorate. Housing supply is managed for margin as a generation is locked out. Care is degraded by financial extraction at the point of delivery. Transport infrastructure goes unmodernised because of the transaction costs of system fragmentation. Sovereign capability is rundown because it does not maximise quarterly returns.
The picture is not one of policy failure narrowly understood. It is the supply-side equivalent of the pre-2008 financial regime: a framework that monitors symptoms while the architecture that produces them goes unchallenged. Britain has built a state that pays for failure but is not permitted to fix it. We are left with the worst of both worlds: a mutating state-market hybrid of price distortions, excess profits, and chronic underinvestment, matched to bureaucratic and costly but ineffective public intervention.
Fixing this requires regaining democratic control of the supply side. This is a central analytical and political task of the next decade. It requires what this essay calls the Productive State: a public institutional architecture for the supply side of the economy, designed to intervene at the specific sites where instability, extraction and underinvestment originate. It is the supply-side completion of the macroprudential turn, one that can build a three-tier economy of abundance, security, and stability – a decommodified foundation of essentials, a stabilised and dynamic market middle, and an innovation frontier enabled by the security the foundation provides.
The most advanced practical demonstration of this approach in Britain today is Andy Burnham’s Greater Manchester programme. Against the grain of national policy and with limited powers, it has begun delivering affordability and economic dynamism in tandem by regaining public control of essentials. This is not just a project to tackle the cost of living crisis, but an institutional basis for a more inclusive, resilient and democratic society – one in which belonging is built through what we experience in common rather than divided by what we can afford. Manchesterism is the theory in motion and the political project capable of carrying it. The argument that follows is the case for taking its logic to national scale, and for building the coalition that can do so.
A very British pathology
Austerity, ageing infrastructure, a cumbersome planning system, global energy shocks, and the long tail of Brexit have all contributed to a single failure: the inability of either the state or the market to build, invest and provide necessities at the scale and cost required. Yet a central source of the problem has remained conspicuously absent from mainstream debate: the privatisation of essential services that transferred responsibility from public providers mandated to meet social needs to private actors with a mandate for profitability alone.
That architecture has four structural features that operate together. Capital flows toward what is privately profitable, not what is socially necessary. Essential investments in reservoirs, grid expansion, social housing, and sewerage that fail private hurdle rates are structurally underprovided. Financial markets exhibit a bias against long-horizon investment, favouring shorter-term returns over infrastructure that pays back over decades. Splitting essential systems across multiple private actors – where they are not natural monopolies – destroys the coordination that integrated networks require, gumming up investment and creating transaction costs at every interface.
And private capital is more expensive than public, locking in a privatisation premium that compounds across the multi-decade lifetimes of infrastructure assets. That premium is paid for by a captive public to access basic necessities, a form of compulsory upward redistribution from households and business to financial investors. These are not accidents of regulatory design. They are structural features of private ownership operating in essential sectors whose characteristics make them ill-suited to it.
Markets do real work where conditions for their functioning are present: substitutability, choice, time horizons that match between investment and return. These conditions hold at best weakly in the foundational sectors. Energy, water, housing, transport and care are domains of inelastic demand, captive consumption, natural monopoly, and existential need. Under these conditions, market governance of the supply side does not produce competitive discipline. It produces rent extraction, under-investment, and the systematic transfer of risk to those least able to bear it.
A generation of contemporary scholarship has converged on the same diagnosis from different angles. Brett Christophers has documented the rentier transformation of the British economy: the conversion of essential infrastructure into asset classes optimised for stable, inflation-linked, monopoly returns with minimal capital expenditure. JW Mason has traced the investment strike at the heart of mature financialised economies: capital managing its claims financially rather than building productive capacity. Isabella Weber has shown how systemically significant prices controlled by private actors cascade shocks through the whole economy in ways monetary policy cannot contain. Gøsta Esping-Andersen named the principle the welfare state instituted at the demand side – decommodification – that has yet to be applied to the supply side. The picture is consistent: in mature financialised economies, the structural features of private ownership of essential sectors systematically subordinate provision to extraction.
The retrenchment of public control has created an economy with a particular pathology. It extracts where it should invest. It fragments where it should coordinate. It prices for profit where it should provide for use. The result is a compounding crisis – of living costs, productive capacity, and public finances – that is at root a supply-side crisis.
Almost two-thirds of the public believe the cost of living crisis will never end. That is not pessimism; it is a sober assessment of an economy that routinely produces exactly this outcome. For millions of households, the basic non-negotiable expenses of life (rent, energy bills, water charges, the weekly shop, transport fares, the cost of care) now consume so large a share of income that insecurity has become a permanent condition.
Our high costs for essentials squeeze more than household budgets. It puts relentless upward pressure on public spending. Welfare transfers chase a problem whose supply-side causes remain intact. Each pound of housing benefit flows through the household into the pocket of the landlord to pay rising rent. Support for energy bills protects the consumer but funds profit margins that remain in place as prices rise. The state ameliorates without ever being permitted to cure directly. This is the fiscal escalator we are trapped on.
Excessive costs are visible everywhere once you start looking: 28 per cent of the typical water bill in England goes to debt servicing, against ten per cent for publicly owned Scottish Water; nearly a quarter of the average energy bill in 2024/25 (£450) was corporate profit. Since the mid-1990s, privatised transport, energy, and water companies have extracted close to £200 billion in dividends while delivering lower investment than their public predecessors. The bottom income decile spends around three times the share of income on energy as the top. Britain’s essential sectors cost more than comparable alternatives not because they deliver more, but because they are organised to extract more.
The existing policy toolkit has failed to address the problem – and that the bond markets are now forcing the political class to confront the trajectory of the fiscal escalator whether it wants to or not. Growing liabilities without a plan to fix them at source attract the remorseless attention of the gilt market. The bond market focus on Britain is the consequence of the existing settlement, not the cost of changing it. Andy Burnham was right to identify the symptom. The question is no longer whether the architecture changes, but how.
The wrong tools for the job
The conventional response that dominates Westminster operates within a binary that has structured British political argument since the 1980s. The market coordinates production through prices. The welfare state redistributes its proceeds through taxation and transfers. Every serious debate has been a variation on the boundary between them: the right wanting more market and a smaller welfare state, the progressive tradition wanting a larger welfare state and better-regulated markets. Both accept the underlying division of labour. Neither has much to say about the question that has now become unavoidable: who owns and operates the foundations of the economy on which both depend.
Our current government’s responses, including but not limited to the redistribution of income, stronger regulation of utilities, and the streamlining of planning, operate entirely within that binary. None of these measures is wrong in isolation. But each is calibrated to address symptoms while assuming markets have malfunctioned, rather than that they are the wrong tool for the job in sectors that produce the essentials we all depend on.
Income transfers are necessary to maintain minimum living standards as the price of basics rises. But demand-side tools cannot address supply-side dysfunction. When supply is controlled by private actors with structural market power (think of landlords who raise rents to meet whatever tenants can afford, energy companies that administer prices to incorporate rising profit margins) increasing household purchasing power does not expand the supply of affordable housing or build new energy infrastructure. It redistributes resources upward, flowing from households into the pockets of the landlord, the utility shareholder, the private equity fund that owns the care home. The public pays twice: through higher bills, and the taxes needed to fund cost of living support.
Regulation faces a tension that sharpens the harder it is pushed. Regulators must attract private capital to fund the investment the country needs; too much pressure risks spooking investors, raising the cost of capital, and passing the increase directly to consumers. This reflects a weak bargaining position in which the government has pre-emptively ruled out its most powerful card, the credible threat of public alternatives. It is impossible to regulate away a problem created by ownership, nor discipline private owners effectively after abandoning your strongest hand.
Planning reform advocates correctly identify that Britain is not building enough on any metric. We must build again. Ending costly gold-plating, reducing veto points, and streamlining the consent process are all welcome steps. More can undoubtedly be done. But ground-clearing is not construction. The agenda correctly identifies what must be done while having far less to say on who builds, how, and at what cost. It assumes that once obstacles are removed, private capital will naturally flow to fill the gap. But the essential assets Britain most urgently needs are precisely those that fail corporate hurdle rates; there is more that society needs than private capital is willing to build. Planning reform clears the road. The vehicle best suited to travel it remains public investment.
Labour’s programme is more serious than anything attempted in a generation. But it leaves unaltered the architecture that produces the supply crisis it is trying to address, and lacks the tools to transform. Welfare transfers cushion without curing. Regulation disciplines without transforming. Planning reform clears without building. That is why the costs will keep rising, the investment will fall short, and the fiscal escalator will keep up its remorseless pressure.
The Productive State
Solving this problem requires an approach that transcends the dichotomy of private market provision and welfare state redistribution. What is required is a third pillar of political economy: the Productive State. It intervenes on the supply side by investing public money into public assets for public provision of the essentials required for a dignified life. Where the market coordinates and the welfare state redistributes, the Productive State produces: directly owning and operating capital in essential sectors, participating in markets as builder and provider rather than as regulator or redistributor. It is the return of sovereign economic control of the economy’s foundations. The name operates on two registers: the state that produces, and the state of productivity, because public provision of essentials is the institutional precondition for a genuinely dynamic economy above the foundation it provides.
Macroprudential financial regulation identifies systemically important institutions and applies different rules to them; the Productive State identifies systemically important sectors and applies different ownership to them. Macroprudential regulation intervenes ex ante to prevent cascading failure, where pre-2008 supervision had intervened ex post to manage it; the Productive State intervenes in production where the existing toolkit intervenes in distribution after the shock. Macroprudential regulation works through structural instruments– (capital buffers, systemic risk surcharges, mandated stress tests)– that change what the financial architecture can do; the Productive State works through structural instruments (public ownership, public corporations, public investment at scale) that change what the supply-side architecture can do. The analogy is the same: stability requires preventative intervention at the architectural level, not reactive at the level of individual firms or households.
The Productive State delivers sovereignty advantages that markets systematically underweight and that the current geopolitical moment makes newly urgent. Price sovereignty: the ability to insulate domestic households and firms from the transmission of global market shocks into bills and input costs. Supply chain sovereignty: maintaining domestic productive capacity for the equipment, components, and materials on which the energy transition depends, rather than trading one geopolitical dependency (imported fossil fuels) for another in the form of imported clean tech goods and capital. And ownership sovereignty: ensuring that essential infrastructure is not progressively acquired by owners whose interests lie elsewhere. In an era of weaponised interdependence, the optionality the Productive State provides – building excess capacity, maintaining strategic reserves, sustaining provision through disruption – is a strategic asset private ownership cannot replicate.
The institution to rebuild the supply side is the public corporation: operationally independent, commercially mandated, borrowing in its own name against its own revenue streams, delivering investment at lower cost and priced progressively. The structural advantages over private alternatives are mechanical, not ideological. First, patient capital: free of quarterly earnings pressure, the corporation can plan against 20- and 30-year payback periods private firms structurally cannot. Second, the lower cost of capital. Borrowing at gilt rates plus a modest margin, a public corporation avoids both the risk premium private lenders demand and the eight to 12 per cent equity returns regulated utilities must deliver, a difference that compounds into substantial savings over the multi-decade lifetimes of essential infrastructure. This is why comparable European infrastructure, financed publicly, delivers lower bills for equivalent or better service. Third, system-level coordination: a single corporation can optimise a sector as a system, internalising the transaction costs that fragmentation has externalised onto consumers and the regulator.
The criteria for intervention
The Productive State does not intervene everywhere. The question is always functional: is private ownership generating the dynamic gains in essential sectors that justify its costs? Five tests to that end.
Productivity exhaustion. When an industry has reached its technical limits and profit becomes a toll on positional advantage rather than a reward for innovation. Water networks are the paradigmatic case: the core technology has been stable since the Victorian era, and what private ownership has produced is not innovation but the financial engineering of regulated asset bases. As William Baumol’s analysis of cost disease argues, profit that cannot be justified by productive contribution is rent.
Systemically significant prices. When the price of a good cascades through the entire economy, price volatility becomes a macroeconomic problem, not a sectoral one. Stabilising it requires public participation at source rather than monetary tightening after the fact. As Isabella Weber has shown, cost shocks in essentials cascade through the entire economy in ways neither monetary policy nor demand management can contain.
Investment strike. When private capital substantially withdraws from productive investment in favour of financial extraction the justification for private ownership of essentials erodes. JW Mason has traced the pattern: capital managing its claims financially rather than building productive capacity. Britain’s evidence is acute. Where capital strikes, the state must build. The Bee Network’s restoration of bus routes in Manchester that private operators had abandoned is the practical demonstration: where private calculation withdraws, public provision steps in and serves.
Social need. When goods are essential for dignified human life, when their absence means you cannot work, keep warm, stay housed, or access care, market allocation imposes unacceptable costs on those least able to bear them. Even efficient exclusion is unjust. Gøsta Esping-Andersen gave this principle its institutional expression in the concept of decommodification: the degree to which individuals can sustain a dignified life independently of market participation. The welfare state extended decommodification to aspects of labour markets. The Productive State extends it to supply markets, to the essentials whose price and availability, left to private calculation, generates the crises evident today.
Public policy goals. When explicit public objectives – decarbonisation, national security, resilience – require intervention in production rather than redistribution of its proceeds, the state must become a producer to accomplish its purposes. You cannot decarbonise by redistributing carbon. You must change what is produced and how. Decarbonisation is fundamentally a coordination problem requiring the rapid, synchronised turnover of the capital stock of major sectors within decades. The Productive State provides the actors that can invest and divest regardless of quarterly returns.
These are tests, not arguments. They identify where private ownership fails on its own terms. Britain’s essential sectors meet most, often all, simultaneously – and that convergence is not coincidence. It is the structural consequence of privatising the foundations of economic and social life.
Manchesterism in action
The argument is not theoretical. It is being demonstrated in practice. Ask someone in Wythenshawe or Rochdale whether the buses are better than they were three years ago and they will say yes. Greater Manchester’s Bee Network is the most instructive public transport experiment in Britain not because it is radical in design but because it works. Since franchising began under Andy Burnham’s leadership, passenger numbers have risen for the first time in a generation. Routes have expanded into communities that private operators had abandoned as insufficiently profitable. Fares are capped at levels the deregulated system could not deliver. The model is now spreading. A public operator optimising for coverage and frequency rather than fare recovery serves a social need that private calculation screens out, while reducing system costs through public coordination.
Manchesterism works. Public control of essentials reduces the cost of provision by eliminating the privatisation premium and lowering coordination frictions, which in turn reduces the fiscal transfers required to make essentials accessible – progressively deflating the upward pressure on public spending that currently exposes the country to the harsh judgement of bond markets. Rebuilding public provision is not the alternative to fiscal prudence. It is fiscal prudence.
What has been done for buses can be done with similar ambition for energy, water, housing, and care. The architecture operates at multiple scales simultaneously: national corporations for network infrastructure like energy and water, regional and municipal authorities for transport and housing, municipal providers for care and local services. The institutional template is already being built, sector by sector, in the places that have chosen to reclaim public control. That is why this is an argument for Manchesterism rather than a blueprint for Whitehall – its political character is decentralised, plural and democratically accountable. The question is whether national politics has the ambition to match it.
A potential sequence of action is emerging. Thames Water’s likely collapse provides the clearest route to public ownership at manageable cost, through the special administration regime. A properly empowered GB Energy can begin building clean and cheap energy at scale, creating the evidence and support for deeper intervention. City-wide public housing corporations can directly address the housing failure no amount of planning reform can fix. Each stage builds support for the next – more people in decent affordable homes, bus networks that serve their communities, households whose energy bills fall as public generation anchors prices – as more constituencies have a material stake in the expansion of the project.
Answering the objections
Three objections to the agenda need answering directly. The first is fiscal and financial, and it is the most frequently raised objection. Bond markets respond to volume, duration and credibility. The model they have actually punished, most visibly in September 2022, is unfunded sovereign borrowing without supply-side return. A Productive State programme delivered through public corporations borrowing against their own revenue streams, transparently scored, and explicitly designed to reduce the demand-side spending it displaces, is structurally different. It is the model the Netherlands has run at scale, financing public corporation liabilities equivalent to nearly 80 per cent of GDP without sovereign disruption while building an infrastructure stock 35 per cent larger than Britain’s relative to GDP. Markets reward revenue-backed paper with predictable cash flows over multi-decade horizons. The Productive State produces exactly that. With effective sequencing, clarity, and design, neither markets nor the fiscal rules inhibit the Productive State.
The second is institutional: that the British state lacks the capacity to deliver this programme. The objection mistakes a contingent historical fact – states hollowed out by decades of outsourcing lack capacity – for a necessary truth. State capacity is not a natural endowment but a constructed capability, built through institutional investment and operational experience. In the last few years alone, the AI Safety Institute and the Bee Network demonstrate that the British state can build effective new institutions when it chooses to. The doing of the work generates capacity. State weakness is the consequence of the privatisation settlement, not an argument for its preservation. Crowding-out objections answer themselves: you cannot crowd out investment that was not occurring. The Productive State steps in where private activity has structurally withdrawn, and the private economy that depends on its outputs becomes more productive as a result.
And the third objection is political-economic, and it is the most serious. It is that the coalition required to deliver this agenda does not yet exist, that 40 years of privatisation and labour market change have hollowed out the constituencies on which a programme of this scale would depend. The objection is partly correct: the coalition is not yet built. But this is a description of the political work required, not a counter-argument. The constituency exists in latent form – workers, communities, households and businesses who have paid the privatisation premium for four decades and are still paying it. With the cost of living the number one issue motivating voters, the public are already signalling a desire for change. What does not yet exist is the organised political expression of their interest. Building that is the task. It is what Manchesterism has begun to do at city-region scale through the demonstrated experience of public provision: material stakes generate political durability, and the political coalition is itself built through the doing.
Three paths before us
The deeper stakes of the argument are best put in the terms John Maynard Keynes used in his analysis of mature capitalist economies. Advanced economies facing exhausted private investment opportunities and insufficient domestic demand have historically had three paths. The first is external expansion: capturing markets abroad, running surpluses, exporting the insufficiency through the mercantilist route that generates geopolitical tension and eventually conflict. That is the path the global far right is now offering – drawing circles of belonging tighter, treating scarcity as a weapon, promising sovereignty through protectionism and external pressure. It leads to the geopolitical instability accelerating around us: trade wars, supply chain weaponisation, great power competition over markets and resources.
Second is stagnation: accepting chronically low investment, high unemployment, and slow growth as the structural price of private ownership’s limits, managing the decline with transfers and monetary accommodation. That is the doom loop Britain has inhabited for decades – low growth, stark inequality, a fiscal escalator that deepens with every year of private under-provision, and the bond markets tightening their grip on the political options available to government.
The third is what Keynes called the “somewhat comprehensive socialisation of investment”: building the productive capacity that private capital will not build, controlling the upstream variable that determines downstream economic life – affordable housing, abundant and cheap energy, reliable and low-cost care and transport networks. That is why he called it socialisation rather than stimulus. It is the path the Productive State takes. It is the path Manchesterism has already started down. And it is the path Britain has refused to walk for 40 years, which is why we are now caught between the first two.
Stability, abundance, security
There is a political claim at the heart of the case for Manchesterism and the Productive State that goes beyond cheaper bills and better infrastructure. Universal public provision does not merely deliver material goods. It constitutes a political community based on dignity and equality. When everyone uses the same buses, the same energy system, the same care services, it creates the shared institutional basis for a politics that transcends the fragmentation of identity and interest that market provision systematically produces. The political theorist Mahmood Mamdani’s account of civic universalism is instructive: genuine political belonging is not created through ethnic or cultural identity but through common membership in institutions that serve all. Britain’s greatest moments of social solidarity reflect this. The NHS not only treated illness, it created a form of shared civic life in which every person was equally entitled to care regardless of income or background. As Aneurin Bevan said, “it will last as long as there are folk left with the faith to fight for it”. The architecture the Productive State produces is what makes that kind of politics possible again.
It does so by delivering three reinforcing outcomes that the existing settlement cannot. First, macroeconomic stabilisation. The welfare state addressed demand-side instability by establishing an income floor beneath which households could not fall. The Productive State creates the price ceiling that complements it: stable energy through public generation, stable shelter through council housing, reliable transport through public networks, dignity through a national care service. The stability corridor – bounded below by income guarantees and above by price stabilisation – must become wide enough that market volatility within it cannot generate crisis. This is the supply-side completion of the demand-side stabilisation the welfare state began.
Second, abundance through coordination. Public corporations can build complementary and cheaper infrastructure (generation plus transmission plus storage, housing plus integrated transport plus local amenities) –because they internalise coordination benefits that fragmented private actors externalise and they can price essentials close to cost. The result is not just more and affordable infrastructure but different infrastructure: housing that prioritises liveability over sale price, electricity systems that prioritise universal and cheap access over margin, transport that maximises coverage over profitability. The Bee Network demonstrates the pattern in compressed form. Public supply generates abundance which expensive private capital cannot coordinate or will not supply.
Third, security through decommodification. When essentials are commodities, wage labour becomes compulsory: people must sell their time to survive, and that compulsion disciplines the labour market, keeping wages down and worker agency limited. Progressive decommodification transforms these dynamics. When housing, energy and care are no longer priced for profit, workers can refuse dangerous or degrading work because refusal no longer threatens destitution. Firms must compete on the quality of the work they offer. Entrepreneurs and workers can take genuine risks because failure does not mean insecurity. The Productive State decommodifies to expand the conditions for genuine enterprise rather than constrain them.
The destination is an economic system with three distinct tiers: a decommodified foundation of essentials provided as rights, a stabilised market middle where competition thrives within bounds, and an innovation frontier enabled by the security the foundation provides. Each depends on the one below. Entrepreneurs can take risks because the essentials are guaranteed. Workers can move because the essentials are portable. Shared abundance weakens the empire of necessity and expands the realm of freedom. As technologies mature from frontier to infrastructure, they migrate through the tiers. The welfare state followed this logic in the 20th century. The Productive State follows the same logic in the 21st, extending democratic control to supply itself.
The choice
Change can be forced by crisis: a collapsing utility taken into reluctant public ownership without a framework for what comes next, a price shock the state cannot absorb, a fiscal emergency that closes off political options without opening new ones. Or it can be designed by choice: a deliberate, sequenced extension of public capacity in the sectors where private ownership has demonstrably failed, governed by institutions built for the purpose, financed through revenue-backed public corporations that bond markets have repeatedly shown themselves willing to absorb.
The deliberate path is what this essay has set out. It is what a serious governing programme that can deliver affordability and dynamism requires. That is what the public now clearly demands. Manchesterism has begun the work of change. What remains is the political courage to act – and the movement to make transformation real.
Mathew Lawrence is the founder and Director of Common Wealth. The Productive State: A Framework for Manchesterism by Mathew Lawrence and Alex Williams will be published by Mainstream on 14 May. You can register to receive a copy here.
[Further reading: Britain is still breaking up]
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