Is Britain ‘undeveloping’ before our eyes? Part II

The country needs an accurate analysis of its plight, a strategy for addressing it and a developmental state to drive forward economic and political change

Part I of the blog is available to read here.

The point at which a country can seek to chart a course out of a development crisis comes when, at last, it grasps the fact that it needs to find itself a new development strategy.  Strategy is the key word.  Of course, it’s an obvious point, but it’s actually really difficult to pull off as a collective, national undertaking, such are the deeply embedded historical and institutional legacies that shape political economy.  So let’s reprise here some themes highlighted in our earlier developmental state blog series and apply them to Britain’s contemporary predicament.

How does Britain seek to embed its development ambitions in the wider world?  Whatever one thinks of the Brexit ‘ultras’, they do have an analysis: they see this country becoming a low-tax, low-regulation, offshore haven.  There are many problems with this vision, not least that it is based on a profound misunderstanding of the way global trade functions, and that the oft-made comparisons with Singapore – which trades freely, but undertakes massive state intervention to shape its domestic markets and outward orientation – are utterly misplaced.  Nevertheless, and despite the myriad shortcomings with their own specific strategy of Brexit, the ‘ultras’ are right to argue that, for any country to develop successfully today, it must engage strategically with the global order.

This is about much more than ‘industrial strategy’.  Too often, this term is abused on both left and right: the former reducing it to little more than unthinking forms of state intervention and subsidies; the latter complaining that it amounts to misguided attempts at ‘picking winners’.  Britain has always had an industrial strategy (of sorts): the Jubilee Line extension to Canary Wharf and the massive bailouts and subsidies to the City since 2007-8 are evidence of that (as our colleague Tom Hunt has noted).  But what it patently does not have is a genuinely developmental state.  Indeed, we doubt whether many who write about industrial strategy are even familiar with the massive literature on the subject.

Yet read it they must!  Industrial policy cannot be simply domestic in focus, nor can it only be about the public sector.  In today’s global political economy, it is as much about attracting the right kind of foreign investment to build up domestic sectors, and about building synergies – what Henry Yeung has lately called ‘strategic coupling’ – between public and private, with the former relentlessly shaping the context in which the latter functions to eliminate rent-seeking and socially unproductive forms of growth (in marked contrast to the frequently disastrous public-private-partnerships of the neoliberal era in which capital parasitically cannibalised the state).  It has to be driven by a cadre of disinterested, insulated technocrats (a difficult argument to make at present, admittedly), who can negotiate with capital from a powerful position within the state and build institutions to ensure that it is put to productive use, while resisting political pressure to support unproductive vanity schemes.

As Ziya Öniş noted in our series, ‘Chinese openness to transnational investment was always based on an active bargaining process focused on aligning the terms of entry with its broader strategic priorities’.  Has anyone done such an analysis of Britain’s strategic priorities in a post-Brexit world?  Do we actually have any idea of what they might be, as we rupture our major trading relationships?  Does anybody in London, amidst the fervour of a highly insular national debate, even have a vision for the world outside, or Britain’s place within it?  Sir Ivan Rogers, our former man in Brussels, thinks not: in a recent speech he suggested that the entire Brexit process has been typified by one strategic blunder after another.  Chris Grey has gone further: he says Brexit itself, in both form and content, is a ‘failure of economic strategy’ based on a ‘naïve’ reading of Britain’s position and influence in the world.

Shaun Breslin made a fascinating point in his contribution to our series: the Chinese developmental state is not as ‘statist’ as it once was and is, in fact, far more market-orientated than in the (recent) past.  This carries worrying implications for a myopic contemporary Britain suffering from post-imperial delusions of grandeur that has little conception, or interest, in how outsiders view it.  Put simply: what is the British economy to a Chinese state capitalist?  As the fiasco over the Hinkley Point nuclear reactor shows, it is a dysfunctional place with insufficient industrial capacity or ingenuity to design and build its own critical infrastructure, a reckless view of its own security, an over-dependence on expensive fossil fuels driven by corporate lobbying and, ultimately, a golden opportunity to make money from a rigged market designed to fleece credulous consumers (all underwritten by a failing, contorted neoliberal ideology that has a deadening grip on unthinking British elites).

It would not be an overstatement to say, despite the positive diplomatic rhetoric, that Britain enjoys essentially the same space in the Chinese imagination as any other ‘developing country’ to which its capital and people are increasingly flowing in pursuit of long-term revenue generation and strategic influence.  As our cities become ever-more Sinified by the rapid growth of new Chinese-financed skyscrapers and (for now) the seemingly never-ending supply of wealthy students, has anyone in government given much thought – again, especially post-Brexit – to what this might mean for Britain’s position within an emerging Sino-world order?  Are we happy to become effectively an offshore platform for Chinese capital, returning tribute to Beijing as our own productive capacity continues to dwindle?

Similarly, what do foreigners hear when historically-illiterate, amnesiac politicians invoke the spirit of empire amidst ‘Global Britain’ motifs while simultaneously trying to close the gates to outsiders and foregoing the productive energy of people who have come to the country to help build it?  It’s not as if the rest of the world does not know how reliant Britain is on immigrant labour to keep its highly flexible labour market purring along.

Garry Knight (CC BY 2.0)

A broader implication of all of this is that Britain cannot stop the world and get off, but nor is it likely to have much success if it does not truly understand its place in that world.  Overall, the global economy is growing, but it’s also teetering now on the edge of recession.  The domestic pie is shrinking, creating an ever-more contentious politics.  The only way Britain can mitigate these threats is by realising that it needs to reshape fundamentally its ailing development model.  As we argued in the conclusion to our previous blog series, ‘the pursuit of developmental transformation by states in what is still essentially a state-based international system continues to take place in every continent of the world … it is a universal problematic which states simply cannot ignore’.

Another insight from the blog series – captured in Valbona Muzaka’s idea of the ‘catch-up treadmill’ – is that states with developmentalist aspirations have to upgrade relentlessly to keep up with those at the industrial and technological frontier.  Justin Lin calls this the ‘leading dragon phenomenon’.  For him, development ‘is a process of continuous industrial and technological upgrading in which any country, regardless of its level of development can succeed if it develops industries that are consistent with its comparative advantage, determined by its endowment structure’.  Would-be ‘catch-uppers’, such as contemporary Britain, should be ‘building up industries that are growing dynamically in more advanced countries that have endowment structures similar to theirs’.

Yet in many respects Britain is now far from the industrial frontier.  As we’ve already suggested, parts of its economy are already peripheral in respect of their insertion into global production networks (GPNs).  Whether we like it or not, most production is increasingly embedded in GPNs and states have to shape their investment climate in such a way that their firms can participate as productively as possible within them, ideally at the highest levels where the most value can be obtained.  The key challenge is that the shape of these networks is shifting dramatically all the time: it is indeed crucial to catch up and to target or copy what is going on in places that are a bit more advanced.  But, as Yeung pointed out, the target itself is always moving.  The global economy is now so competitive that what appears a good strategy to emulate today might not be tomorrow.

What can Britain do about this, as firms in its existing key sectors – from automotive production to legal and insurance services – are compelled gradually to move parts of their operations to mainland Europe in order to remain in the regulatory eco-system of the EU Single Market?  How can it mitigate a deterioration in its terms of trade for these existing industries and at the same time develop industrial strategies that allow it to build new ones in future growth-sectors?  These are unquestionably daunting challenges, but that doesn’t mean that answers cannot be found.

The key point is that Britain – just like those developmental states which were successful precisely because they did things that neoliberals said they shouldn’t – needs once more to find its own unique developmental path.  Perhaps a doubly-hard ‘no-deal Brexit’ (doubly-hard because, until very recently, ‘hard Brexit’ had simply meant leaving the Single Market, not crashing out without any agreement) where we sever our existing links with the supposedly sclerotic economies of Europe will deliver this?  We rather doubt it and think it’s actually much more likely, in this scenario, that ‘undevelopment’ will intensify, with our politics becoming nastier, more insular, and even pretty toxic. The better strategy is to embrace urgently and wholeheartedly the philosophy of state developmentalism as a new national project.  It has worked for other countries.  Why couldn’t it work for Britain?

Read Part I of Matt and Tony’s blog here