Practitioners of the dismal science (aka economics) are fond of asserting that Britain is caught in a doom loop. That is to say, any measures taken to halt decline and lift our prosperity in one part of the loop may, so it is maintained, relieve temporary pain but make things worse beyond that and elsewhere in the processes of production and national consumption. So no escape is possible.
In the doom loop script, does the arrival of a fresh government in the UK, bent on boosting growth, make any difference? Or are we condemned to an unending cycle of underinvestment and declining productivity — roads not built, trains not running, schools not repaired, local governments bankrupted by soaring social care costs and special needs, hospitals not built, courts jammed, defence spending falling short, energy transition not happening, homes for the younger generation unaffordable, the pound weakening (meaning inflation coming back), so real wages falling again, more discontent and disruption in public services, more government borrowing to fend it off, along with higher debt interest – and so on, round and round in a vortex of discontent ?
Not a pretty picture — but is it an accurate one? Are we looking at the whole scene through the right lens? Or does the nation need a new spectacles prescription to distinguish between realities and genuine trends and the blur of half-truths, with all the muddle of mis- and dis-information that now comes with them, mainly via the flood of social media, but with the conventional media proper by no means guiltless?
There is one thing about which convinced doomsters and the less pessimistic are both correct. A great deal more and faster growth in national wealth would ease the tensions, calm the anger, unite and prepare the nation. It would also raise the mood and morale more than anything else.
But how do we get on this happy path? Telling the public that the new Government will “pull the levers of growth” sounds fine, but how does it do that? Which levers are they, and are they connected to anything? How is national renewal to be triggered so as to break free?
The old answers seemed to be simple. Borrow more and raise taxes. But if borrowing more raises debt interest and deters investment, while higher taxes hit consumption, you are back where you started: still stuck in the low growth doom loop. Anyway, after the last decade or so of turbulence and global violence, most governments are already under water on state borrowing. Borrowing more in the bond markets is always theoretically possible for almost any nation. But there is no appeal if they raise the price while the currency sinks.
As for taxes, in a wired up and open democracy there is always a bargain to be struck between citizen tax payers and the spending state, although the terms of the bargain are shifting all the time. For instance, it used to be said that in Italy during the last century there was a tacit agreement level. If taxes took no more than 35-38% of national income, they would be paid, however reluctantly. Sliding above that level, resistance would creep in – resistance being in the form of increasing elaborate tax avoidance schemes, shading off, still legal, into illegal money transfers to hiding places or overseas. Little or no extra revenue or extra revenue resulted.
Roll forward to today’s empowered, e-enabled and unending stream of digital populist demands and causes, and the multiple and continuous pressures on central government spending have become ten times more persistent, varied, often conflicting and hard to resist politically. Governments now start large but weak, pressed to intervene everywhere, but with powers and capacities well short of what is needed to deliver what they are now expected to deliver, all making stable and respected governance almost impossible. The electorate, like a small, angry child, furiously throws its toys out of the pram and furiously wants them in again.
The wise response is to accept that this is the new condition in which the state is now under attack: not from the left-or-right ideologies of the past, but from technology itself, which has no left or right. This cannot be resisted on all fronts. But it can and must be met at a range of specific points with state policy of surgical precision and with skills and foresight to ensure a framework of order, within which vast changes and upheavals, potentially totally destructive of ordered existence, can somehow be contained within the rule of law, both within societies and between every society.
There are certainly some clear-thinking economic experts who see this and have specific solutions which form part of an approach. None totally “solves” the new era’s challenges or the doom loop trends, but some are a definite part of the overall stance now badly needed.
For example, the celebrated economist and former banker Andrew Smithers, always a challenger of conventional economic wisdom, argues for one set of measures in particular: namely, to cut the level of corporation tax dramatically.
This advice has been totally ignored by the current UK Government and its predecessors. Indeed, they have mostly done the very opposite. By contrast, Ireland has done extremely well by doing exactly that.
Here, this would not be an overall solution and would cost large revenues, which would have to be found from higher income tax, VAT and other charges. It would also have to go along with a corporate change of mindset away from the attractions of the bonus culture, ending inaccurate depreciation concepts and a stop on diverting cash to share buy-backs rather than new investment. That would be part of the new bargain.
If that sounds politically impossible, then it would need to be accompanied by a simple educative explanation to the general taxpaying public (long overdue) that individual workers are the end payers of corporation tax anyway, as much as through income tax and VAT, and the gainers when it is reduced. This is in contrast to the current erroneous belief that somehow corporation tax is paid by corporations themselves and is their burden, which of course it is not. In the end the individual taxpayers pay anyway.
Then there is Kenneth Baker’s educational reform programme. He has been right all along that apprenticeships and skills must be the educational priority and opportunity – almost above all else, certainly above the Blair-era belief that most of the young should go to university and that universities should proliferate to meet this falsely generated demand. After years of error this is being half-corrected — almost, but not quite, too late. New academies reflecting the Baker philosophy have sprung up and flourished. But on key details, Lord Baker still remains a near-lone voice.
A third key change lies in the complex and arcane area of the central machinery of government. The key here is to get the central and strategic task of national budget management and allocation out from under the near-monopoly grip of the Treasury (the “bean-counters” in chief in Whitehall) and placed where it should be at the very centre of political authority, national direction and purpose. In more brutal words, split the Treasury on the lines of the United States (and in most major democracies), where the Office of Management and the Budget is placed firmly within the Presidential Executive Offices.
Tried by the incoming Heath administration in 1970, and vetoed by the Whitehall establishment for fifty years or so, now the idea has been revived in Lord Maude of Horsham’s excellent Review of the machinery of central government and civil service procedures
What sounds like an abstruse, technical and purely organisational shift would in fact open the pathway to the massive long term investments, woven into new forms of cooperation between the public sector and the private sector, which are the necessity in escaping the negative forces of the low investment loop. Lessons have to be learnt from the Private Sector Initiative of the 1980s, which ran into difficulties and was in the end scrapped. But the principle there remains the right one.
These steps are important candidates for a larger agenda of items, as set out below. This agenda neither makes the claim to be a magic solution nor single key to resumed national progress. There is no magic to be had. There is no single key. There is instead a practical list of actions and measures which could do the best we can against decline and the apparent doom vortex.
In his best-selling book The Coming Wave , Mustafa Suleyman reckons on a 50 per cent chance that “the delicate bargain of the nation state” can hold against immense pressures from the advance of technology on a completely unprecedented and pervasive scale.
Nothing, Suleyman reminds us, compares with the vastness of the impact of current technological advance on the world we live in. He is right. With luck and good sense, ordered states can be preserved against collapse and anarchy, even while trust and respect evaporate under the impact and the senses of unfairness and injustice — as the benefits of capitalism are seen to go increasingly to the already very rich — that tiny percentage at the top of the wealth pyramid.
The practical list below, and its vigorous implementation, could lift that figure, not of course to 100 per cent certainty of the survival of democratic liberalism, but to something much better than that 50 per cent.
Interestingly, almost none of these issues got any sort of mention in the recent General Election campaign in the UK, a pathetically parochial and inward-looking affair, largely thanks to the media. Nor are they receiving much attention in the US Presidential race, which is playing out with different tunes, or in many other elections around the world currently.
Yet they are highly relevant ingredients of the changed geopolitics, and necessary ones, to which adjustment is not optional but essential. What has been so significantly absent from public discussion must now become central, moving out of the back of uneasy minds and whispered thoughts into the heart of debate and government focuS.
First and foremost, for the UK (dare one even say for the whole of the British Isles) there must be a narrative — and a narrator, with the mastery of language and history and technology to paint the whole picture with both real illumination of its darkest corners and utter conviction.
It has to be explained, as it has not been so far, that we are now in a totally different world order from the one prevailing in the previous century. The United Kingdom’s relationships with all — from the United Nations to the USA, to the European neighbourhood, to Africa, Asia and the Middle East, have changed or are changing radically. This necessitates a complete re-positioning of the British nation and a recasting of its diplomatic priorities and methods.
America has itself to adjust to its new role, not as automatic leader of the West, but as the strongest player in the new global network, and with Britain in close and friendly partnership — not as a satrapy, or compliant subordinate. That is not a relationship of the 21 st century which endears it to the neo-non-aligned nations who want to belong neither to a Chinese hegemony nor an American (or Western) one, but to be independent partners in a global network of mutual respect. They look to, and value, the close and continuing friendship of the UK, especially through networks like the Commonwealth.
In the UK, this fundamental realisation has reached many, but they are not in the ascendant yet in Whitehall, in Parliament or the political parties or in some institutions. It is possible that the shift has reached some in Downing Street, in which case the new Prime Minister could emerge as the carrier of the new message about Britain as part of his promised national renewal. Admittedly, he has not shown much sign of doing so yet.
It could even be that the new story could come into the governing forum from outside, from an immensely powerful book, or well-respected author, amplified digitally and on screen to become the generally accepted and overwhelming mission or destiny.
Second: The relationship of democracy with modern capitalism is essential to the health of each. The ideological battle between capitalism and socialism, at the centre of the 20 th century world divide, is now redundant, although it continues to be fought over by politicians. But lifting the focus onto major reform of the Western liberal capitalist model begins to make the system the friend, rather than the enemy of modern democratic freedom – a defeat turned into a victory.
By contrast, persisting with the old capitalism-versus-socialism ideological battle ignores the fact that neither China nor Russia attempt to operate socialist economic systems, developing instead their own brands of capitalism — in China under the aegis of a police state and in Russia more as a mafia model. Globally, socialism remains only a brand name or cover up for versions of outright illiberal dictatorship or ersatz democracy. North Korean governance has of course got nothing whatever to do with socialism, and is a straightforward family and fascist dictatorship.
Re-fighting twentieth century ideological battles diverts strategists from addressing constructively the unpopularity of Western liberal capitalism and the urgent need to reform it and widen its benefits. The struggle now about which varieties of capitalism should be encouraged and favoured, was long ago foreseen by Michel Albert in his brilliant 1993 work Capitalism against Capitalism. In this he recognised the total economic failure of Communism and extolled the “Rhine model” of social capitalism as the pattern for the future.
The fact that today’s capitalism, as now practised throughout the free world, fails to “work for everyone” and confines the largest asset and wealth gains to a tiny percentage at the top of numerous societies, remains a dangerously divisive factor and a dangerous impediment to popular democracy.
PEW Global surveys repeatedly confirm the unpopularity of capitalism amongst the majority of those under 40, and the wish, although by a smaller group, rather shockingly, to do away with parliaments and elections altogether, with a move over to “strong leadership”. Polls in Africa now show a prevailing preference for strong leaders to “weak” Western democratic systems.
Third: the internal disunity at the heart of previously unquestionably liberal states is a very serious threat to our survival. It divides countries which need strong internal unity as a basic prerequisite for their geopolitical influence and the preservation of Western values. These are in effect the ingredients of the bonding “glue” helping to prevent the perpetuation of the doom loop economic trap and delaying societies and peoples from separating and crumbling, possibly violently, under internal antagonisms.
In sum, measures to develop far wider participation in a more responsible and shared form of capitalism are key to both economic and political progress, in contrast to the doom loop model.
Fourth: the momentum of national investment in both the public, infrastructural and private sectors must be greatly accelerated. The main sources of this investment funding will be, respectively, from:
- Far wider worker and family participation in asset growth via employee share ownership, ESOPs and other incentive schemes, as above.
- The return of pension funds (now about £3 trillion) to British equity and enterprise investment, as well as public utilities; this was the pattern up to the end of the last century.
- The re-attraction of sovereign wealth funds, again with £trillions at their disposal for investment, and sympathetic to UK projects, public and private, but deterred by lack of suitable investable vehicles on offer, and both by the prevailing anti-private enterprise atmosphere and the regulatory maze.
- The unhealthy dominance of the UK Treasury in deciding all national investment priorities, given their inherent short-termism and accounting disciplines, as against long term national priorities. This narrow budgetary and programme management process is not present in other democracies, and certainly not in the USA, where the Office of Management and the Budget comes under direct Presidential authority.
- Foreign Direct Investment flows, now picking up somewhat but still well short of past peaks, and particularly of the major inward flow from Japan. It is often forgotten that it was Japanese FDI in the late last century which transformed and saved the British motor industry, the electronics industry, many supply chains and accelerated the complete rejection of trade union restrictive practices. Productivity during this period soared.
All these issues noted above should be central features of the reforms necessary to escape the doom loop, dragging the UK down and threatening future economic and social stability. THEY ARE NOT SO AT THE MOMENT AND NOR HAVE THEY BEEN IN RECENT YEARS. A HEAVY PRICE IS NOW BEING PAID.
Would-be investors in the UK are hard-headed and realistic, wherever in the world they are based. They do not expect miraculous freedom from external dangers, some unforeseeable, as was the case with Covid, the recent energy crisis and world inflation over the last decade. But they do expect and look for stable and competent government within an atmosphere of established and reasonably unchanging regulation and of sustained encouragement to enterprise, small as well as large, and maximum freedom for innovation.
The world is not yet fully on fire, but very near it in some regions. The strong international contribution of a united, internally stable and prospering British nation to the prevention of catastrophic escalation globally will also be an influence on the confidence of those who wish to invest in Britain.
Riots across cities of the United Kingdom, flaring up destructively as these words are being written, do nothing to help with the needed break from the past weakness, or the emergence of a better future. But they take us back to the point where this essay started. Technological advance has brought with it a new age to which nations and free peoples, their systems of governance and their relations one with another, must now adapt, and, where possible, help shape.
There will always be dissent in free societies, and consensus will always be limited. It is probably the case, too, that world peace will always be fragile and replaced by wars of varying intensity in some places.
Internal stability, unity and truly and fairly shared prosperity will give us the resources and the strength within to navigate very considerable external dangers lying just ahead. Beyond that, maybe more of the same, maybe calmer times. Who knows? Aristotle called the good goal for a country Eudaimonia – a successful and flourishing nation. Despite all the setbacks, it should still just about be within our reach.
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