A new economic consensus is taking shape. Gone is the idea that globalisation is inevitable, that the future lies in the “knowledge economy”, based on transferrable skills like PowerPoint presentations and that Britain can merely compete in internationally tradable services such as finance and corporate law.
We’re finding that our “just-in-time” economy built on short-term profit maximisation has not served us well in an age of insecurity in which we need longer-term capacity “just-in-case”. Covid-19 shone a harrowing light on the lack of critical medical supplies such as face masks and PPE, which we had to import from the country where the virus originated.
Meanwhile, the geopolitical shocks of the wars in Ukraine and now in Gaza have laid bare our lack of domestic energy supply and reserves, and our hollowed-out defensive capabilities. The geo-economic shock of the spike in inflation and the US-China trade and technology wars demonstrate our dependence on hostile foreign countries we cannot trust. The focus is quickly shifting to Taiwan, whose semiconductor industry is called the country’s “silicon shield”. It produces over 60 per cent of the global supply of semiconductors and over 90 per cent of the most sophisticated ones.
As globalisation slows down, the world’s great powers are pursing their national interests and economic resilience even more aggressively. As a middle-sized power and the world’s sixth-largest economy, the UK has to adapt and rethink its economic model.
The overarching priority is to re-shore production and build up more domestic capacity. A vital part of this is high-tech manufacturing and industry, including battery capability and other elements of the transition to net zero such as solar and wind. The fact that solar panels and wind turbines are currently imported shouldn’t stop us from building up more capacity and establishing trade partnerships with allies rather than relying on China and other geopolitical opponents.
Other industrial policy priorities are the defence industry to boost production of ammunition for the war efforts in Ukraine and Israel, agriculture and food processing, as well as a mass housebuilding programme with 300,000 new homes per year, including 100,000 affordable ones. That will require much more competition in the construction sector combined with a UK-wide programme of training builders and plumbers and electricians.
While the Conservatives under Rishi Sunak cling to the old orthodoxy of Global Britain and a buccaneering free-trade project, Labour is now following the lead of the Biden administration in embracing the build agenda.
But given the much smaller size of the UK economy, Britain needs to adopt a smart strategy, one that takes its lead from the various regional industrial strategies developed by the Greater London Authority, the Greater Manchester Combined Authority and Tees Valley. Labour should also renew and extend a Tudor legacy of statecraft (creating colleges and autonomous institutions between state and market, which can provide high-quality vocational and technical training) and specialisation linked to place: naval college in Newcastle, automotive engineering in Wolverhampton, nuclear engineering in Somerset, battery factories in the Midlands.
A new economic settlement that combines home-building with re-industrialisation would revive the UK economy. It would enable the left to build a New Deal for the 21st century.