After his pub visits to drink Guinness in Ireland at the start of his 2012 election tour, Barack Obama faced palaces, pomp and pageantry in Britain. He must have felt like he was in Ruritania – but a pathetic one, as our political class clustered round for pats on the head, all desperately hoping to be told we’re still special. Even though we no longer are.We cling so desperately to the skirts of the United States because we’ve blown our own greatness but won’t admit it, so our leaders and media pretend we are still mighty and assert it the more desperately because they know we aren’t.
In 1962, US Secretary of State Dean Acheson told us that we had lost an empire but not yet found a role. Every one we have groped for since has proved inadequate. Europe was to provide a new stage on which our political class could strut. The European Union damaged our economy and failed our expectations and now we sit in it, marginalised, irrelevant and unable to decide whether to go forward or get out. The white heat of technology rapidly cooled. Our powerful financial sector was to be the new paradigm. It burst in a debt bubble and recession. Now we play the world’s police community support officer – Robin to America’s Batman – but we can neither afford it nor extricate ourselves from the resulting mess.
At the heart of political scientist Francis Fukuyama’s new book is the idea of “getting to Denmark”. By this, he means creating a good society on the basis of a strong economy. As in Denmark, that includes peace, prosperity, stability, integrity and social inclusion. But Denmark was a place Britain’s ruling class never wanted to go: taxes too high, working class too powerful. This country started the journey to Denmark between 1945 and 1951 under the Labour Government, but the effort was exhausting and since then sustaining the economic base to support welfare and wellbeing has proved beyond us.
The root of failure is economic. The members of Britain’s elite were more interested in running an empire and fighting wars than manufacturing things or making the economy grow. The techniques necessary for both were anathema to dominant British interests, particularly finance and the City. Finance saw dear money (an appropriate reward for those with most of it) and a high and stable exchange rate (the better to manipulate money and acquire assets all over the world) as crucial to economic success – at least, to their success, however damaging to manufacturing. Plutocracy ruled and it was not OK.
Fast-growing economies – first Germany, then Japan and finally China – started out with a low exchange rate which they held down to keep manufacturing competitive and build economies of scale, a virtuous cycle of investment and powerful exporting sectors. By contrast, British manufacturing – shackled by a high exchange rate and dear money, and concentrating complacently on its domestic market – grew only slowly. We lost markets, even eventually our home market. Imports rose, exports flagged and the balance of payments turned sour. The basic policy of the fast-growing economies was to keep their exchange rate down, despite every protest by the Americans. In Britain, the national strategy was “fighting inflation”, so the pound was treated like a phallic symbol: proud when hard.
Some economists were worried by this industrial weakness. Complacent ministers and business leaders were not. Indeed, finance did well out of decline, as factories were sold for housing or shopping centres and the City earned fat fees from takeovers and flogging failing British businesses to competitors.Finance became excessively powerful, while manufacturing became weaker. This country had higher inflation because of lower productivity. Balance of payments crises developed as we sucked in imports. Facing this, the ruling class fell back on its conditioned reflex: blame the workers. Interest rates were raised to punitive levels, demand was deflated, unemployment rose and incomes policies were imposed, leading to the stop-go cycle which weakened the country, cut growth and lost the goodwill of a workforce badly led to nowhere.
Misguided policies reached their fullest expression in Thatcherism’s orgy of “creative destruction”, based on no better economic reasoning than that industry, like public school chaps, would benefit from the cold shower of competition. If phoenixes rise from ashes, then what better way to breed British phoenixes than to produce more ashes? Thatcherism did. It claimed to be a policy for regeneration, but the 1980s saw the biggest deindustrialisation in the industrial world, affordable only because North Sea oil had come on stream. The Norwegians used their oil to invest and rebuild. We squandered ours to finance imports and make the electorate feel better.
All this has been well chronicled. Less well documented is the fact that, instead of reversing the follies and beginning the great rebuilding, New Labour maintained the policies that had been so damaging to Britain’s industrial strength and the prospects of its own people. Under Tony Blair and Gordon Brown, Labour’s economic policy was Thatcherism with a smile and a minimal redistribution. More public sector jobs reduced unemployment, but there was no reversal of privatisation with its higher utility costs on industry. There was little investment in manufacturing. Growth was still shackled by a pound kept too high and money kept too dear to defeat inflation, so manufacturing continued to shrink and shed jobs. Germany modernised and rebuilt its industrial base. Our industrial base continued to decline, losing jobs and markets. Rather than attending to the problems they caused, Gordon Brown had fallen in love with finance, the City and the economics of his friend, Alan Greenspan, chairman of the US Federal Reserve from 1987 to 2006. Brown assumed we had found a new paradigm for growth. In fact, it was a huge debt bubble and, in 2008, it burst.
Which takes us to where we are today, with a smaller industrial sector, 11 per cent, than most competitors, no national champions, fewer big producers, no mittelstand industries – the small and medium-sized enterprises which power Germany – and very few successful sectors outside whisky and pharmaceuticals. British industry has been colonised by takeovers. Our big names, many of our utilities and a high proportion of our shrunken industrial base are foreign-owned – most bought to serve the British market not to export. They expand or, more usually, contract production on the basis of foreign decisions, not the needs of this country.
Finance is battered, but it is still king. It is still not investing in manufacturing and is now desperate to attract foreign capital and investment by offering London as a tax haven for the rich. The balance of payments gapes wider than ever. And, because we can’t pay our way in the world, the deficit continues to grow – to be financed by ever more borrowing and asset sales. If Britain is to revive and even survive, all this must be turned round and the economy rebalanced from finance to production. That will be difficult. The soft-faced men who have done well out of decline are entrenched, the City is still dominant and the forces for growth are much weakened. Yet the real problem lies in the minds of power. Labour, once the party of industry and its workers, has lost touch with both and has many lessons to unlearn – a difficult process for an organisation with little understanding of the dynamics of production and heavily preoccupied with the public sector, the environment and welfare, rather than growth.
The Tories have learned nothing and forgotten everything, while 19 millionaires in the present Cabinet ensure its devotion to finance – a deference dramatically brought home by their propensity to punish ordinary people not the perpetrators of our predicament: the banks and finance. So the former workshop of the world staggers on, its comparative decline now compounded by voodoo economics. The plutocracy still rules, the people are still punished and the rich grow ever richer.
In Greece, Portugal and Spain, similar cruel deflations produce riots and mass demonstrations. Here there is quiescence. The British don’t particularly like one another. So each pins the blame on the other, with a double dose of blame for the poor, viewed as scroungers, layabouts, spongers and the cause of the problem. Working-class leadership is weak. Voters, punished for crimes they didn’t commit, are relapsing into alienation and apathy. Our leaders won’t tell us the truth and the people, fed for years on myths, have been encouraged to live in Ruritania and believe we can combine an effective welfare state with a powerful warfare state. Understanding that we’re living in cloud cuckoo land could be the first step to fighting back, embracing the disciplines and stringencies necessary to reverse decline and resume the long march to betterment. Sadly, there’s little sign of that. Monarchy may have become the opium of the people and we certainly do royal weddings and other ceremonial occasions brilliantly. But you can’t export them and they don’t provide a base for the good society.
Austin Mitchell is Labour MP for Great Grimsby
