Anthony Hilton: More intervention from state can help soften Brexit blow
Anthony Hilton: Prime Minister Theresa May sometimes gives the impression that all we need to do to prosper in this brave new world is to embrace free trade
This matters. The Prime Minister sometimes gives the impression that all we need to do to prosper in this brave new world is to embrace free trade and strike imaginative partnerships with “friends old and new”. She needs to understand that it is rather more complicated than that: exporting only works when you have something to sell which others want to buy.
But that’s not enough — one also needs the infrastructure to provide market intelligence, export finance and support for the vast majority of firms which simply do not have the resources to go out unaided to sell in distant markets. We are in a bad place because we have nowhere near enough world-leading products and technologies and we have never invested in the long-term support mechanisms.
The UK has other skills, but the Brexit focus is heavily on manufacturing. However, if we are to get through the short-term pain and disruption and emerge into something altogether more prosperous then the UK is going to have to raise its game significantly.
That is where the industrial strategy should come in. It is not about warm words and speeches — it is about fostering innovation, financing start-ups, growing them to size and protecting them from an opportunistic foreign takeover. It is about improving the quality and focus of management and the skills and motivation of the work force. It is about raising the status of manufacturing and transforming us from a low-wage, low-cost producer to a high-wage, high value-added economy.
None of this is likely to happen without fundamentally changing the role of the state and what we expect from it. Professor Mariana Mazzucato — one of the leading thinkers in this area and now the director and founder of the Institute for Innovation and Public Purpose at University College, London — talks about mission-oriented development, where the state doesn’t only “de-risk” projects but boldly takes risks, directs investments to help deliver the desired outcome and provides the long-term capital which private finance doesn’t.
In this analysis markets are understood to be the outcome of the interactions between those in the public, private, and voluntary sectors so the idea that markets always know best is nonsense. Market forces are quite different in China, Scandinavia and the US, and who is to say which is the most efficient from society’s point of view?
Another key insight is that wealth creation is a collective process, and so the wealth that is created should also be distributed more equitably. The best functioning economies are those where public and private interact and co-operate — what she calls co-creating value. Contrary to popular opinion, the US is good at this — the technology which powered Google and Apple was largely developed with government money in government research institutes. This is a classic case of the state acting as an investor of first rather than last resort.
It is easy to see how this philosophy would lead to the development of a meaningful industrial strategy in this country, but it is not the philosophy of the Conservative party — nor indeed, at this juncture, of the CBI.
Government still subscribes to the view that the role of the state is to enable others to do the job, and to keep itself out of the way by not taxing, regulating or otherwise interfering too heavily. Public choice theory, Mazzucato argues, has convinced the present generation of civil servants that government failures are worse than market failures so Government should take no chances. Theirs is a world of risk reduction, load shedding, privatisation and outsourcing.
Mazzucato’s point is that to function effectively in the modern world we need to re-think the story of the state’s role to allow it to be an active participant with business, supporting companies which have a vision and purpose that is more than simply boosting the share price.
So that leaves us with an interesting conundrum. The majority of the most passionate Conservative supporters of Brexit are free-market liberals.
How will May persuade them that the way to make Brexit work is significantly to increase the engagement of the state in the economy?
