This is a grave error, and Burnham’s Manchesterism speech on Monday — his first major intervention as Prime Minister presumptive — acknowledged as much. Alongside his eyecatching plan for a Northern wing of Number 10, he lambasted the UK’s public sector for “chasing cut-price deals around the world” as opposed to helping our own “British-based suppliers”, and promised to make taxpayers’ money work “harder for them”. This was a theme Burnham aired repeatedly during the byelection campaign in Makerfield. He cited Britain’s “wasted decades” of neoliberalism and the need to end “forty years of failed economic policy”, raising the prospect of a Britain in which wealth will be rooted in actual production, far more evenly distributed across its regions, and democratically controlled.

The significance of his argument is that it points towards a different economic future from the Blair-era comforts that Starmer and Rachel Reeves have been selling us: essentially, spend more, tax fairly, regulate better. This assumes that Britain’s problem is essentially one of distribution and inefficiency, and could be corrected by a more competent management of the existing settlement.

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This was always inadequate, and it is encouraging to see Burnham embrace the concept of Manchesterism, as laid out in The Productive State, by Mathew Lawrence and Alex Williams, one of the most serious economic frameworks to emerge from the Labour center-Left in many years. Nevertheless, Manchesterism, even in its most developed form, does not go far enough. It remains primarily a program for rebuilding the foundations of the economy through better public provision. But Britain’s crisis runs deeper, and Burnham needs to go much further if he is to arrest Britain’s decline and build an economy that rewards rather than punishes its citizens.

What Manchesterism gets right — and where it stops

Manchesterism starts from the observation that the neoliberal model for public services has failed on its own terms. The classic approach of the Tony Blair era was to invite private companies to bid for contracts to run public services, on the theory that competition would drive down costs, via the “cut-price” deals Burnham cited. What it produced instead was a helpless state, stripped of the capacity to do things itself, at the mercy of private companies far more skilled at exploiting contract law than any harassed local authority. The fundamentals of British life — care, energy, housing, transport, health — have become commodified, run by companies more interested in extracting wealth from the public realm than actually helping people lead productive and dignified lives. The tendency is visible all over the economy: in private equity firms making billions from dysfunctional care homes; in train operating companies extracting profits from lucrative franchises while services deteriorated; in “health services” companies milking NHS hospitals as infection rates rise.

The Manchesterism alternative is public corporations borrowing against their own revenue streams at the UK government’s borrowing rate, investing in infrastructure, and running services in the public interest. The Bee Network — Greater Manchester’s integrated bus system, which Burnham brought back under public control — works. Thames Water, by contrast, is a monument to scandalous dysfunction that follows when essential infrastructure is placed under financialized private ownership.

But while bringing the foundations of daily life under public control is welcome, it will only go so far. The only way to rebuild the engines of wealth creation and ensure that productivity gains translate into broadly-shared prosperity is to restore working-class power through secure, well-paid, productive jobs. GB Energy, if properly capitalized, could begin to change the terms on which Britain generates power. But it can only do so if Britain has the domestic manufacturing base to build the turbines, cables, and grid infrastructure required. There’s no point in trading a reliance on imported gas for a reliance on imported “clean” technology.

Instead, we must recognize that Britain’s political dysfunction is really a reflection of our failure to answer two fundamental questions: namely, who owns and operates the foundations of the economy? And in whose interests? Today, the economy serves shareholders, management consultants, financiers and property owners. The real challenge is to create an economy that instead serves workers, and rewards the creation of real wealth. In other words, Britain’s crisis goes deeper than Manchesterism — and the debate must be conducted at the level of rigor and ambition appropriate to the moment.

The productive crisis

Britain’s fundamental economic problem is structural and specific. Labor productivity has been essentially flat since the financial crisis of 2007-9. British workers produce less output per hour worked than their counterparts in Germany, France, or the United States — and the gap has been widening. Net national savings have been in negative territory for nearly two decades, and we have meanwhile been consuming our accumulated capital stock — letting factories rust, railways decay, and infrastructure crumble — rather than investing to expand it. Our trade deficit in goods has also been persistent since the mid-1980s. We have become a nation of consumers, and we are consuming on credit.

The scale of the destruction that created this situation is still not adequately appreciated. In 1979, manufacturing accounted for close to 30% of British GDP. Today, that figure is 8-9%, with employment in the sector falling from 6.8 million to 2.6 million workers. The well-paid, unionized factory jobs that sustained communities across the North, the Midlands, Wales and Scotland have meanwhile been replaced by insecure, non-unionized work in call centers and distribution warehouses. These are the communities that have voted for change at successive elections — including Brexit —and have been repeatedly disappointed. In the regions that bore the brunt of the destruction, economic inactivity among working-age people now runs at between 24 and 28%.

The financial sector that subsequently grew did not magically compensate for this destruction. Rather, it profited from it. In 1979, Margaret Thatcher’s new government implemented one of its signature policies in removing controls on the international flows of capital. This enabled the City of London to speculate with the wealth that had been generated by British production in international financial markets. When steelworks in Sheffield or shipyards on the Clyde or car plants in the West Midlands closed, the banks and asset managers were not passive bystanders. They recycled the capital — putting it into property speculation, consumer credit, and financial engineering.

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One notorious instance occurred in 1991. Hanson Trust quietly acquired a stake in ICI, then Britain’s largest manufacturing company, in what was widely seen as the opening move in a hostile takeover. Hanson had no interest in building Britain’s chemical industry. Instead it hoped to unlock shareholder value through the break-up of one of Britain’s great industrial companies. Although the takeover never materialized, the episode accelerated a profound shift in ICI’s strategy. Within two years it had demerged its pharmaceuticals business as Zeneca and embarked on a prolonged restructuring driven increasingly by shareholder value rather than long-term industrial development. Hanson exited after making a substantial profit, having contributed precisely nothing to Britain’s productive capacity. This, in microcosm, has been Britain’s industrial policy over the past 40 years.

But this hasn’t just been bad for British industry. Financialized capitalism has also had consequences for equality. The richest 10% of the population now receives 35% of Britain’s income in yearly bonuses, dividends, capital gains, and rents. The richest 1% holds more than 20% of the total wealth, while the poorer half of the country holds around 5%. Real wages in 2023 were barely higher than they were in 2007. A third of children now live in poverty — more than half of them from working households.

This escalating inequality is not only the result of an unfair distribution of the proceeds of growth. An economy built on Serco contracts, Deliveroo riders and Cavendish Square hedge funds does not present us primarily with a distribution problem — which is why the old Blairite formula of spending more, taxing fairly and regulating better isn’t going to do much to improve it. This is, instead, an economy that has stopped growing in ways that reach most people. Stressed workers scrabble for gig work between insecure care-home shifts while those who own the businesses extract ever more wealth. This is because the productive base that once made broadly shared growth possible was deliberately dismantled.

So Britain cannot create prosperity, reduce inequality, or regain genuine sovereignty without rebuilding its productive base. Manufacturing is where labor productivity rises most systematically through mechanization, automation, technical change, and information technology. It is where workers’ power has historically been strongest, allowing productivity gains to translate into wage increases rather than shareholder returns. And it creates deeper growth around it too, since manufacturing doesn’t just create jobs in factories — it also supports jobs in the businesses that supply materials, transport goods, and sell finished products.

Moreover, services, including finance, which have become the mainstay of the British economy, will never correct the persistent trade deficit in goods. The alternative to reindustrializing Britain is not the economy of highly-paid knowledge workers that we were once promised. It is a low-tech, low-paid service economy in which finance continues to dominate and inequality persists. In other words, the Britain we live in now.

The skills catastrophe

Integral to Britain’s productive failure is an acute crisis of labor skills. The destruction of manufacturing did not simply eliminate jobs but extinguished the knowledge that lives within workforces, apprenticeship networks, and technical colleges — as well as the relationships between firms and the people who build and maintain things. The steel towns of South Yorkshire, the shipbuilding communities of the Tyne and Clyde, the sheet-metal and toolmaking traditions of the Black Country had distinct identities built on skill, pride in craft, and knowledge passed down over generations.

Once this knowledge is gone, it does not return automatically when investment arrives. British manufacturers regularly report the absence of welders and metal fabricators, toolmakers, electrical and instrumentation technicians, mechatronics and robotics engineers, and CNC programmers. These are the foundational competencies of any modern industrial economy — and without them, reindustrialization is far harder even when the will and the finance exist. The technical education system that might address this gap is fragmented and poorly funded. England is particularly weak on post-16 higher technical training — the kind of provision that Germany delivers through dual vocational apprenticeships and the Berufsschulen system. Worse, mainstream commentators have consistently failed to grasp the depth of the problem because they treat skills as a training policy question rather than a structural consequence of forty years of productive decline.

The coming wave of artificial intelligence displacement makes the urgency greater still. Without a deliberate and funded redeployment and retraining of workers, tied to real posts in expanding industrial sectors, Britain will face a hollowing out of its services workforce. We need a national labor plan, offering long-term training programs, mid-career conversions, and apprenticeships of a kind Britain has not had for decades.

The bond market as political test

One argument commonly ranged against public corporations is the idea that they will spook the bond markets. The specter of Liz Truss’s disastrous mini-budget of September 2022 is never far from such discussions. But the bond market panic Truss unleashed was a response to unfunded sovereign borrowing without specified supply-side returns. This was effectively a subsidy for the wealthy, not targeted public investment in productive assets.

By contrast, public corporation financing is usually acceptable to bond markets — as long as it is credibly structured and borrows against its own revenue streams. The Netherlands finances public corporation liabilities equivalent to nearly 80% of GDP without sovereign disruption, though, to be sure, the institutional framework is different from Britain’s.

Burnham has taken a position on this issue, even stating that “Britain is in hock to the bond markets” — though he has also sometimes tied himself in knots trying to reassure financial markets that an ambitious program would not alarm them. The Dutch example shows it need not be the dire problem it is often made out to be.

But a Labour government that begins to implement a truly ambitious industrial policy can expect a different order of response from the City of London — which will inevitably generate pressure on gilt yields, pressure on sterling, and pressure on the political class to abandon ambition. That pressure will not be a market verdict, however — but, rather, a political intervention by concentrated financial interests whose position would be threatened by the program.

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In other words, the barriers to taming the bond markets are political, not technical. A government that issues debt in its own currency and is prepared to use its central bank cannot be forced into default by bond market pressure. Central bank independence is a shibboleth of the neoliberal era — a constraint entrenched by Gordon Brown’s decision in 1997 to grant the Bank of England operational independence. However, its time has now passed. The Bank of England is a public institution, and part of its mission must be to deploy its control over the nation’s credit to rebuild the nation’s productive base. Since the crisis of 2007-9, the Bank has created vast amounts of money to bail out failing banks and manage stagnation. There has always been money for that. The Bank should be at least as forthright in rebuilding Britain’s productive capacity.

An ambitious Labour government should be able to rely on the Bank to continue holding its gilt stock rather than unloading it at loss-making prices, as it is currently doing at vast cost to public finances. The Bank ought to reinvest maturities and keep interest rates low and stable while Britain rebuilds its productive capacity. A break from the Bank’s current posture is a break from New Labour’s foundational economic settlement and should be named as such.

But even a cooperative Bank of England would be insufficient without a wave of public investment in key infrastructure capable of “crowding in” private investment. It would further require a well-capitalized Public Investment Bank with preferential access to the Bank of England. It would thus raise immediately the issue of some degree of capital controls, in order to ensure that money generated in Britain stays in Britain rather than being spirited away to accounts in Switzerland or the Cayman Islands the moment a government pursues policies that threaten the returns of mobile capital.

Capital controls are neither exotic nor radical. This was standard policy in Britain from 1945 to 1979, the period of the country’s strongest growth performance in recent decades. They are currently used by China, India, and many other successful industrializers. Even the IMF has acknowledged their legitimacy under conditions of financial instability. Their purpose is not to cut Britain off from the world but to change the incentives for fast-moving speculative capital, preventing it from disrupting the productive sector and limiting the power of finance over elected governments.

A Labour leadership candidate who cannot articulate a credible strategy to prevent capital flight, including the readiness to use targeted capital controls as and when they are necessary, has not yet answered the fundamental question about surviving contact with the City of London.

The policy space Brexit created

Beyond finance, a serious industrial strategy will also take advantage of the policy space that Brexit created and that no government since 2016 has exploited in the ten years since the vote. This failure makes Labour’s continuing internal paralysis over the question of rejoining the single market all the more damaging. Britain is now free to align trade policy with domestic investment and employment in ways that EU single market membership foreclosed.

An industrial strategy that hopes to deliver results will need time for productive capacity to take root. In the meantime, the risk is that new capacity will be killed through cheaper imports from countries with lower wages, laxer standards, state-sponsored overcapacity and so on. This is how capitalism works, and there is no point pretending otherwise.

Nevertheless, there are several tools available: WTO anti-dumping measures and safeguards; a Carbon Border Adjustment Mechanism that could equalize the carbon price of imports in steel, aluminum, cement and other foundational sectors from 2027; procurement rules requiring domestic content and supply chain traceability. If necessary, tariff-rate quotas, national security designations, and domestic content conditions can be attached to public subsidies and grid connections. Donald Trump has made managed trade a normalized reality in the world market — and there is no going back to the free-trade consensus of the previous, now defunct, era. Britain should use the space available to it and stop wasting time.

Organized labour as key mechanism

There is one further dimension of this debate which has been less visible so far, but is crucial to whether Britain can come up with a genuine alternative to an extractive economy— trade unions. Organized labour is not simply a constituency to be won over but a key mechanism for restoring Britain’s wealth-creating capacity. Union representation on the boards of public corporations is the lever through which public ownership serves the interests of workers and the public. Union power in Britain is how regional rebalancing becomes real rather than rhetorical. The skills crisis cannot be addressed without organized labour either — for workers tend to understand the needs of their own industries better than those outside them.  The reconstruction of apprenticeship frameworks, the rebuilding of technical education, the link between training investment and union density that coordinated market economies have consistently demonstrated — all of this requires workers’ collective power, organizational capacity and crucially, their practical knowledge.

The tests of seriousness

Andy Burnham could run on Manchesterism and offer a better-managed version of the current settlement. That would be an improvement — but it would not be the breakthrough that Britain truly needs. The country desperately needs policies that address its deep productive crisis. If a radical Labour government is to go down that path, four specific commitments will be the test of its seriousness, as we show in detail in our forthcoming book.

First, a target to raise manufacturing’s share of GDP to an achievable and sustainable level that could act as a base for further increases. This should be backed by a costed investment program that includes public equity stakes, a properly capitalized Public Investment Bank, and union board representation as a condition of public finance.

Second, graduated and targeted capital controls to protect democratic economic decisions from speculative financial attack.

Third, trade regulation that uses the policy space Brexit created and no government since 2016 has seriously exploited.

Fourth, a national labor plan for rebuilding skills and training, with long training programs, mid-career conversions, and apprenticeships with high completion rates, as the vital human foundation without which an expanding industrial base cannot exist.

Britain has had nearly five decades of neoliberal failure, punctuated by the periodic realization that its decline is worse than previously acknowledged. The debate that Manchesterism has opened is the right one, and the left should deepen it. The central challenge remains Britain’s crisis of production, from which its crisis of provision ultimately flows. The four commitments we have outlined are the minimum conditions for a genuine break. Anything less is a better-managed version of what we already have — and we know that it does not work.

Costas Lapavitsas, Larry Elliott, and Doug Nicholls are the authors of Reindustrialise Britain: A Strategy for Wealth Creation (Polity Press), forthcoming, September 2026.

For now, a 10% tariff increase would have a minor impact, maybe subtracting about 0.2% from Chinese GDP in 2025 — a fairly trivial amount in an $18 trillion economy. Nonetheless, Beijing can’t be seen to lose face. And so, having previously promised “countermeasures”, and that it would file a complaint with the World Trade Organization, it will also lift tariffs on 10 February by 10% on American coal and LNG, and levy 15% on crude oil, agricultural equipment and large autos. Even so, these products barely account for $14 billion — or less than 10% — of imports from the US; China can get almost as much oil and gas from Russia to compensate. Because China has fewer American imports on which to act, it is notable that it announced investigations into Google, Intel and Nvidia for possible breach of anti-monopoly laws, along with export controls on tungsten and about two dozen other rare earth minerals.

These initial moves by the US and China are hardly of sufficient gravity to qualify as a trade war. None will have a serious impact on the world’s two largest economies, and any of them could be suspended, or dialed back if there were a sudden willingness to calm down and discuss at least temporary ways of addressing mutual concerns.

If, though, the Trump Administration takes offense and escalates further, China would be bound to respond — by allowing the Renminbi to decline and perhaps with targeted measures on exports of sensitive materials. But any move would be carefully weighed. Beijing would dearly relish it if the President’s attention were to remain focused on his nearer neighbors, along with those who are yet to feel the slap of a tariff, such as Europe and even Britain. One imagines that nothing would please China more than to watch NATO countries in disharmony and distrust over the coercive tariff policies of the US.

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Ultimately though, it is the fracturing of Sino-US relations that will be the major axis on which the world will pivot. Everyone would feel the blowback. And even as both tread gingerly for now, it is inevitable that as China and the US both struggle for global dominance, they will throw down the trade and commercial gauntlet from time to time. These tensions are a symptom of their adversarial relationship, and as the world order shifts, it is certain to intensify.

What is more important, though, beyond this spat over tariffs, is a far more consequential trade story which has been playing out over the last few years and which has deep, deleterious roots.

According to the IMF, China’s balance of payments surplus in 2025 is expected to be 1.6% of GDP — or roughly $300 billion. This is most probably a considerable underestimate, since it was in the region of $600-700 billion in 2024, or around 3.5% of GDP. In actual fact, China’s trade surplus probably reached around $1 trillion last year, with Chinese exports growing four times more than the estimated 3% rise in world trade.

This matters because in a properly functioning trade system, countries produce and export what they are good at and import where they have shortcomings. In China’s case, exports are booming, partly because China’s uniquely well-funded industrial policies are the cornerstone of its economic and political strategy, and partly because China produces things the world wants — like EVs, batteries, wind and solar equipment — relatively cheaply. This focus on production and capacity, bolstered by serious industrial policies which stress self-reliance, has contrived to propel exports at breakneck speed, and keep imports subdued. But the consequence of such imbalance is that far from being the main engine of world growth, as is often claimed, China is one of the biggest drags on it. Put another way, countries that sell more to the rest of the world than they buy are forcing other nations to import more which subtracts from growth; while countries that buy more than they sell, like the US or UK, are offering stronger export opportunities for other countries, which adds to growth.

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The reason imports are so weak is twofold: China owns the entire supply chain in a large number of goods, so it has no need to import intermediate or component products; more important, though, is the fact that household incomes, and therefore consumer demand, are in the doldrums. And the government has no desire, or finds it hard politically, to recalibrate this economic imbalance.

For now, then, China’s modern, vibrant tech sector is concealing other vulnerabilities. It sits alongside leading firms and brands in clean energy, electric vehicles, batteries, industrial machinery, semiconductors, robotics, life sciences and biotechnology. But it only accounts for about 13% of GDP. And much of that remaining 87% is treading water, with the country’s still outsized real estate and infrastructure sectors facing difficult years ahead as they come to terms with excess supply, shrinking demand, and severe financial problems among heavily indebted provincial governments.

A plethora of measures have been undertaken to stabilize the real estate market, encourage the equity market to rise and banks to lend, as well as restructuring local government debt — but the implementation of market reforms and the redistribution of income, wealth and ownership, entailing a redistribution of political power to private households and entrepreneurs, can’t possibly be contemplated by Beijing. So while the glitzy tech sector prospers, the greater part of the economy suffers from slow growth, troubling unemployment, stagnating productivity, and misallocation of capital.

Almost 20 years ago, Premier Wen Jiabao noted that China’s economy was unbalanced, unstable, uncoordinated and unsustainable. In some important ways, things are much worse now. But its impressive looking tech scene and surging exports are drawing attention away from systemic weaknesses for which they cannot compensate.

China can probably withstand or deflect a trade spat or disturbance, even as its economy struggles. But if serious trade conflict were to break out, with high tariff rates and other restrictions, things could get painful pretty quickly. And not only would Chinese mercantilism be on the hook — the whole world would feel the chill. Trump may be the proximate cause of protectionist tariffs as we look around the world, but unless China is willing to change its economic and political ways, trade conflict and commercial resistance are inevitable.

At the root of Germany’s industrial woes is electricity, which is now nearly twice as expensive as it is for their American counterparts, and three times more expensive than in China. Prices have been rising since the early 2000s, but a policy embraced by the German government in 2011, following the nuclear meltdown at Fukushima, sealed the nation’s fate. The proponents of the Energiewende (“energy revolution”) policy made the astonishing argument that Germany could rapidly abandon both fossil fuels and nuclear energy without losing its industrial edge. This was, as one Oxford study put it, a “gamble”. Or a game of Russian roulette, a cynic might have added.

The gamble hasn’t paid off. Even Germany’s gas-related dealings with Russia — a source of Russo-American tension since the Sixties — couldn’t stop prices rising throughout the 2010s. They were significant enough, however, to make the shock of Russia’s invasion of Ukraine in 2022 nearly lethal for German industry. Today, electricity prices are at their highest since 2000, with total production hitting its lowest point since then.

This makes it incredibly tough for Germany to compete with China. Not only does Russian gas continue to flow to China in ever greater quantities, but the Chinese are also receiving sanctioned Iranian oil; installing more than 90% of the world’s new coal power capacity; putting the finishing touches on a hydroelectric infrastructure that already generates more power than Japan; and building ever more nuclear power plants. All this has ensured a fundamental manufacturing advantage over Germany.

But there’s more to the tale of German decline than cheap electricity. The past two decades have also witnessed an industrial revolution of sorts: at the turn of the millennium, China churned out cheap junk and not much else. Now, though, it is shaping up to be a formidable and sophisticated rival.

The car industry is a prime example. Today, Chinese electric vehicles are among the best and cheapest in the world, posing a menace to domestic production in Germany and the rest of Europe. But this was not always the case. As one post on r/CarTalkUK, a Reddit group with half-a-million users, puts it: “I remember only a few years ago when Top Gear went to China and showed us all those horrific knock-off death trap shit-boxes that looked like mutilated Minis… now those things are seemingly a thing of the past.” The EU is well aware of this development, having just slapped tariffs on Chinese cars that would make Trump blush. And it’s not just cars — China dominates many key markets, including drones, shipbuilding, solar panels, and wind turbine components to name just a few, and is making strides in other areas too.

Consider its acceleration. The nation started out by hawking junk, leveraging cheap labour to build up healthy export surpluses. This provided Chinese companies with the cash to invest in moving up the supply chain and, critically, to go shopping abroad. In 2004 and 2005, Chinese state-owned enterprises bought up F Zimmerman and Kelch, two of the world’s leading machine tool companies whose highly specialised equipment is vital for thousands of manufacturing processes. Of course, buying companies doesn’t necessarily hand its new owners the keys to the kingdom: transferring high-end R&D and manufacturing processes to China and training up loyal Chinese engineers and scientists who won’t emigrate can still be scuppered by export control laws, union action, political intervention and so on. But it’s a pretty useful strategy that sooner or later creates opportunities.

Another tool at China’s disposal has been the joint venture system, whereby German manufacturers who wish to set up shop in China are expected to share their critical knowledge and technology with their Chinese competitors. This kind of pact may seem utterly Faustian, but dozens upon dozens of high-profile companies have signed up. This includes Volkswagen, which now finds itself shutting down its German factories for the first time in history, in the face of ever more daunting competition from Chinese rivals.

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China’s twin strategies — joint ventures and purchases — were both turbocharged by the financial crisis. And still Germany did nothing. A series of new laws that might have enabled better government screening and intervention were passed in 2013, but not used for years.

By 2016, the threat could no longer be ignored. That year, Chinese interests took control of a hugely important German company, the robotics giant KUKA. Their products are used in a whole range of industries: from carmakers and battery manufacturers to medical device companies and aerospace companies such as Airbus. Along with another big deal that year, the purchase of the plastics processing machine company KraussMaffei, the alarm was sounded.

Yet Germany kept on hitting snooze. It wasn’t until 2018 that the government first cited security concerns to block a major takeover, this time of the metal forming specialist Leifeld Metal Spinning. The same year, then economic minister Peter Altmaier proposed a special government fund to buy German firms facing a foreign takeover. The idea came to nothing.

Slowly, however, the Germans have been wising up to the competition. A series of legislative changes have updated the 2013 foreign takeover screening tools, enabling more intervention in recent years. There have been around a dozen or so measures taken against acquisitions every year since 2019, with hundreds more scrutinised but left to proceed.

Arguably, this is all too little, too late. Thanks to decades of investment in tech acquisition through takeovers, industrial espionage and joint ventures, as well as complementary investments in human capital, China now has its own high-tech innovation ecosystem. The days of Chinese copying are not over per se, it’s just that copying is now accompanied by homegrown invention.

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Last year, China accounted for more than half of the world’s industrial robot installations and surpassed Germany and Japan in industrial robot density, a key measure of automation. This will potentially enable China to avoid old trade-offs associated with the transition from low- to high-end industry. In a contrast with the historical experience of some developed nations, China may not need to offshore low-end industry to wherever labour is cheaper, instead leaning on automation and cheap energy to keep supply chains national — a strategic boon in an era of growing tensions.

The US cottoned on to China’s industrial coup in 2016 and began responding. Donald Trump’s China policy, his “trade war”, was adopted and further developed by Joe Biden after 2020. The focus on technology, industry and China is now a central pillar of US foreign policy, and historians will surely view 2016 as a historical turning point in China-US relations.

By contrast, it has taken the EU eight years of damage to start a serious conversation about China — despite being a prime victim of high-tech industrialisation. And it only began in September, when former Italian prime minister Mario Draghi published a report on European competitiveness for the European Commission. This has since been promoted by the President of the European Commission Ursula von der Leyen in the context of the escalating dispute about European protectionism against Chinese electric vehicles.

And still it seems that the EU’s response to China’s innovation boom will once again be late and ineffective. One only needs to look at the battery sector to see why. In an attempt to turn the tables, the EU has hinted that it will block Chinese companies from accessing its electric battery grants when investing in Europe: unless they hand over their superior battery technology. This is the very same trick that China played on Europe for years, but the EU’s hand is undermined by the weakness of European battery initiatives. Just last month, “Europe’s Tesla”, the “battery champion” Northvolt, declared bankruptcy.

Add to this EU infighting. The troublemaker in chief is Viktor Orbán’s Hungary, which argues against an “economic cold war” with China, having received nearly half of all Chinese investment into Europe in 2023, including funding for a major automotive plant that is now subject to retaliatory probes from the EU Commission. Germany must balance its own interests with those of an increasingly fragmented trading bloc.

With German industry collapsing, nationalism is on the rise once again. Since July 2023, the anti-EU, anti-immigration AfD has consistently been rated the second most popular party in national polls. And in June’s European Parliament elections, the AfD came second, winning most support in the old East. In September, it won a plurality in the eastern state of Thuringia, but has yet to form a governing coalition.

The region is also home to another radical political force: Sahra Wagenknecht, whose nascent Left-wing populist party is named after her. A half-Iranian former Stalinist and self-described “Left conservative”, Wagenknecht has attempted to unite anti-immigration, anti-Nato and pro-Russian politics, arguing that “Nato must be dissolved and replaced by a collective security system including Russia”.

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Both Wagenknecht and the AfD have been investigated by the Federal Office for the Protection of the Constitution (BfV) — Germany’s equivalent to MI5. In particular, the BfV has embroiled itself in legal disputes with the AfD, which it has successfully argued in court should be subject to surveillance on the basis it is a suspected anti-constitutional organisation. This is due to its supposed anti-Muslim, anti-refugee and anti-democratic rhetoric. The AfD has also endured espionage investigations involving Russian and Chinese financial and personnel infiltration.

For such a popular party to be treated as if it is a terrorist organisation raises questions about the strength of Germany’s post-Cold War regime. Does it risk shedding legitimacy by stigmatising widely held concerns? Or can it accommodate and temper the emerging political forces that have been nurtured by years of mass immigration and are now best set to capitalise on looming de-industrialisation? There is already evidence that voters in Western industrial areas may be the vanguard of possible AfD gains outside the old East — AfD politicians continually attack Net Zero, responding to fears about industrial jobs. Then there’s Wagenknecht, who warned ominously in 2022 that Germany risks experiencing “incredible deindustrialisation” without major reform. Her solution is peace with Russia and renewed gas imports. This autumn’s state elections in Thuringia, Brandenburg and Saxony suggest these messages are hitting home.

Despite the swell of popular discontent, there is little sign that Germany’s February election will change enough to reverse the energy crisis. At this rate, Germany’s industrial woes are set to continue, multiplying opportunities for China to steal a lead in key areas. Meanwhile, Russia will dangle the promise of unlimited gas before the eyes of the growing AfD and Wagenknecht movements. These insurgents may yet experience breakthroughs outside of the former Soviet East, prompting a constitutional crisis at worst, or otherwise forcing the established parties into major policy adjustments. Already, Scholz has announced unilateral steps effectively to suspend Schengen, Europe’s free movement system, after coming under pressure over immigration.

This is without doubt the most severe crisis Germany has faced since its rebirth 34 years ago, when the former president Richard von Weizsäcker promised that the fledgling republic would “serve peace in the world in a united Europe”. How, though, can Germany do so when both peace and a united Europe have proven so elusive? Uncomfortable as it is to admit it, history is far from over for Germany. The nation may yet decide that it is better simply to serve itself.

Its brain eventually erupts into a cylindrical fruit, which pushes its way, like an exploring finger, from the ant’s head to release its spores on the breeze and infect nearby colonies. The ant’s survival is not an evolutionary concern of the fungus; all that matters is its ability to totally manipulate the ant’s functions, and to spread its spores as far as possible, at whatever cost to its host.

Such is the British state after forty years of exposure to neoliberal ideology. After four decades of privatisation and outsourcing, it hesitates to close the borders to a lethal pandemic because feeding a few thousand travellers in airport hotels is beyond its capacity; it can’t produce a functioning track and trace system; when the pandemic began, it had no stock of PPE and wasted millions trying to procure essential supplies from private profiteers. Even supplying free school meals to quarantined children transpired to be beyond the capacity of the fifth-largest economy on earth, leaving the government hostage to the ineptitude of the profiteers to whom it outsourced the role, and humiliated by a Premier League footballer’s PR advisor. Even as the British state is brought to the edge of destruction, it cannot shake itself free of the ideological parasite of outsourcing, deregulation, and  privatisation which controls its every action.

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Who are Covid's guilty men?

By Aris Roussinos

All because the British state has been hollowed out to the point that it can barely be said to exist. Its survival, even within the short term, is doubtful: but then the host’s survival, and that of the colony to which it belongs, was always secondary to the parasite’s desire to reproduce itself and unleash the free-floating spores of capital.

A recent academic paper by the political scientists Lee Jones and Shahar Hameiri lays out, in forensic detail, how Britain’s record-setting death rate from Covid derives from the failures of what they term the “neoliberal regulatory state”, whereby both Conservative and Labour governments have retreated from active “government” in favour of hands-off, vaguely-directed “governance”. This has, they explain, resulted in “the deliberate reduction of popular expectations of public authority; the outsourcing of responsibility to technocratic, private and quasi-autonomous actors, weakening lines of control and accountability; and the hollowing-out of state capacities and authority to the benefit of frequently inept large-scale corporations.”

Over the course of decades, “state apparatuses were… reconfigured to reduce their responsiveness to popular demands.” State-owned industries were privatised and “authority and control over resources were extensively transferred to unelected technocrats, independent regulators, quangos (quasi-autonomous nongovernmental organisations) and public-private partnerships.”

The results, once this mutilated state was faced with a deadly virus, are clear to see: 100,000 dead and counting, and a devastating economic collapse. Yet there was nothing inevitable about this outcome. The destruction of the British state was a conscious, willed decision by successive governments, who adopted a naive and idealistic faith that deregulation and privatisation would make us richer, happier, and above all freer. The state, they declared, was unwieldy, bureaucratic and wasteful: shifting governance to market forces would be more cost-effective, responsive and, above all, efficient.

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As we now see, this was pure fantasy, a construct of radical ideology marketing itself as “common sense”. Marketisation, however, has not led to the eradication of waste and inefficient bureaucracy, but to the vast growth of both, taken out of democratic control and oversight. As Jones and Hameiri observe, and as any of us can see every day, “the neoliberal regulatory state is actually characterised by greater bureaucracy and considerably higher governmental spending (including on welfare) than its predecessor”.

Costs and bureaucracy have risen exponentially, even as capacity and accountability were frittered away: “neoliberal states may be highly functional for large-scale, internationally-oriented capital, but they have clearly become dysfunctional for solving very basic social problems.”

Modern society is not, as was promised, based on a self-regulating market, correcting itself and achieving desirable outcomes through some “hidden hand” — a faith which betrays its roots in Enlightenment Deism. Instead, it has become a construction of purely parasitic private enterprises, the outsourcing firms and consultancies which waste vast sums of taxpayers’ money on the inept delivery of services that are rightfully the state’s domain. We have rendered what is Caesar’s to Deloitte and SERCO, and are presented with the bill in the daily litany of deaths announced on the evening news.

The reality of neoliberalism, Jones and Hameiri underline, is that “precisely because markets are not natural and spontaneous phenomena, they have required extensive state de- and re-regulation in order to create and maintain them, spawning vast, complex bureaucracies”. Yet at the same time, “rising government spending has often been directed to maintaining this burgeoning ‘quangocracy’ and related private-sector consultancies, and the outsourcing of public services to capitalist enterprises.” Today, they point out, the state has become so dysfunctional it has entered “an asymmetric relationship of co-dependency,” with the British state and its outsourced parasites locked together in a downward, deathly spiral of decline.

This is not a bug, but a feature of today’s society. As the left-wing writers Nick Srnicek and Alex Williams observed in their 2015 manifesto for radical futurism, Inventing the Future, “contrary to its popular presentation, neoliberalism differs from classical liberalism in ascribing a significant role to the state. A major task of neoliberalism has therefore been to take control of the state and repurpose it.” Like the Cordyceps, these enterprises depend entirely on the state for their survival — whether to bail out their failed adventures on the free market, or, functioning as a pure parasite, compelling the state to act as an accomplice in its own destruction.

It wasn’t always like this, Srnicek and Williams remind us, and it doesn’t have to be this way. “In its origins, neoliberalism was a fringe theory,” they observe, “its adherents found it difficult to gain employment, were often untenured, and were mocked by the Keynesian mainstream.” As the historian Peter Hennessy notes, before its spores infected Thatcher’s Conservative party, neoliberalism’s ideologues were mocked and marginal figures, frustratedly complaining about the “Tory paternalism and a dash of dirigisme” which marked her predecessors, and Macmillan’s “Tory government with a large chunk of socialism built into a consensus,” which emphasised state capacity and growth through government-directed investment in core strategic capabilities. The nation’s needs came first: the remorseless, destructive power of the market was kept at a cautious distance, where it belongs.

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Why the British love ghost stories

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It took the oil crisis of the 1970s and the collapse of the Trente Glorieuses of post-war reconstruction for neoliberalism to achieve Western hegemony, the cultural and political dominance by which such a radical and unlikely ideology was adopted as “common sense”. Yet the dystopia in which we now live vastly overshadows the Winter of Discontent, the crisis used to justify this new order in Britain, in its severity. We are enduring the worst disaster since World War Two, and its effects have been vastly amplified by the deconstruction of the state. Now, the pendulum must swing the other way: our essential task is to revive the British state before its total collapse.

After all, who can say with a straight face that the British state of 1971, or of 1961 or 1951, would not have dealt with the Covid crisis more effectively than our current collection of hapless outsourcers? As Fukuyama observes, it is the functioning state bureaucracies, with their legacy of top-down dirigisme, of South Korea and Taiwan, that have performed best in this crisis, and we must turn to them as our example.

There is a tragic irony in observing today’s ideologues helplessly lament the British state’s incapacity on Twitter, like the sorcerer’s apprentice at the mercy of the forces he unwittingly unleashed. This is the country they built. And now that their ideas have failed, it’s up to us to rebuild our state in a way that works. It is time for a new hegemonic understanding, a new common sense, of the necessity and desirability of the state directing private industry and national resources in the pursuit of strong national capacity.

Jones and Hameiri remark that the one functioning arm of the British state in this crisis has been the armed forces, the one sector shielded from the destructive logic of the free market. To this we must add the marked success of the government’s programme of vaccine research, procurement and delivery. It has been a top-down marriage of private industry, the intellectual resources of Oxford University and the capacity of the NHS — directed by government under the realm of a politician, Matt Hancock, who we must now reassess as a serious and competent state functionary worthy of praise.

In the success of Britain’s vaccine programme we can discern the outline of a certain dirigiste future: not an enemy of private enterprise, but its director in the service of the national good; not the creative destructor of the state’s capacity, but its rebuilder in a modern, efficient and effective form. It is a return to a hegemonic understanding of the state’s role expressed by Macmillan himself in a diary entry that “[the] forces at work [are] now too complicated, [the] risks of setback too great to leave to market forces and laissez faire. Dirigisme. But it must be creative dirigisme.”

It may be too late for the British state, but we must try. The state is too weak to host its parasitic accretions any longer. Like the ant colony which discovers the Cordyceps infection amongst its number, we must remove the baneful ideological spores of self-destruction from our government if we intend our nation to survive.

With the polls narrowing there’s a question as to whether this approach will work any better. But if the current government is returned next week, might we see a more radical agenda emerge into the light?

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The 10 brains behind Dominic Cummings

By Peter Franklin

If anyone in this administration has big ideas it’s Dominic Cummings. That much is clear from his blog, an in-depth guide to his thinking and influences. He stopped blogging when he followed Boris Johnson into Downing Street.

But last week there was a new post. This was mostly about Brexit and the election campaign, but there was an intriguing post-script:

“If you’re interested in ideas about how the new government could really change our economy for the better, making it more productive and fairer, you’ll find this paper interesting. It has many ideas about long-term productivity, science, technology, how to help regions outside the south-east and so on, by a professor of physics in Sheffield: A Resurgence of the Regions: rebuilding innovation capacity across the whole UK.”

The media love to portray Cummings as some kind of Bond villain, so is this professor — one Richard Jones — his mad scientist?

In a word, no. The media, finding no hint of insanity in Jones’ work, tried to make something of his political differences with Cummings instead. That’s a shame, because the real story is whether the paper, having been endorsed by Boris Johnson’s licenced thinker, represents the Conservatives’ real manifesto.

I’ve read it and agree with the following assessment by Stian Westlake, a Whitehall advisor on innovation policy:

“The mini-storm over Dom Cummings citing @RichardALJones’s recent paper on innovation policy prompted me to re-read it, and *boy* is it good. I agree with more or less everything, and as a bonus it is delightfully written…

“On a couple of occasions I’ve been asked by a new science minister ‘what should I read on innovation?’, and it was always quite a hard question to answer. But now, I’d just say ‘read that’.”

*

It begins with an unsparing look at the weaknesses of the British economy. Basically, the UK is two economies: there’s our thriving capital, surrounded by a prosperous hinterland; and then there’s ‘Outer Britain’ (as officialdom once called it), which is stuck in what Jones calls a “low innovation, low skills, low wage equilibrium”.

Outside the orbit of London, neither business nor the state puts enough investment into skills, innovation and infrastructure. That’s because there’s not enough demand for these things. At the same time, the high-productivity enterprises that might supply the necessary demand don’t set up shop here because the necessary skills etc can’t be supplied. It’s a chicken-and-egg situation.

Britain beyond the South East is working hard and creating jobs, but people and communities don’t just need work, but prospects too — a chance to get on, not just get by. For that to happen a ‘jobs miracle’ is not enough, we also need a productivity revolution — a shift to a high innovation, high skills, high wage equilibrium.

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The state can’t achieve this alone, it ultimately depends on private enterprise. However, government can provide the catalyst.

Jones observes that “the industrial strategy of the Conservative administrations between 1979 and 1997 was not to have an industrial strategy”. This continued until the dog-end of the New Labour years. This was deliberate; industrial policy was associated with failures of post-war planning and the strife-torn industrial relations of the Sixties and Seventies.

And yet, it became abundantly clear that the industrial non-strategy of the Eighties and onward was broken too. Not only has the UK’s established economic model not worked for most of the country, it was also implicated in the devastating crash of 2008.

In the course of our current decade, there’s been a big shift in Conservative thought. In 2016, a new Department of Business, Energy and Industrial strategy was created — its name signalling the end of an old taboo. And even though ‘regionalism’ has remained a forbidden term, concepts such as the Northern Powerhouse have been actively promoted as part of a decentralising agenda.

Then there’s the U-turn on research spending. After a long period of decline, the Government wants more public and private sector investment in science and innovation. Its manifesto commits to a “target of 2.4 per cent of GDP being spent on R&D across the economy”.

Furthermore, there’s a new consensus that investment in science and technology can’t just be limited to academic research in Britain’s universities. Our higher education sector is one of strongest in the world, but we are weak in what the paper describes as “translational research” — i.e. turning knowledge into innovation, and innovation into enterprise.

Countries such as Germany have strong translational research institutions, a key component in the ecosystem of universities, leading-edge companies, supply chains, providers of technical education and the networks through which individuals, businesses and organisations cooperate and compete to build local economies. Jones calls this the “industrial commons” — which is intact and flourishing in some parts of the country, but hollowed-out in others by decades of de-industrialisation, political centralisation and under-investment.

*

In this decade, there are signs that Whitehall and Westminster have woken up to this reality. We’ve seen significant decentralisation of power and resources; industrial policy, as mentioned, is firmly back on the agenda; and support for innovation includes funding for a growing network of Catapult centres — institutions which specialise in translational research and the regeneration of our industrial commons.

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So, does that mean that Richard Jones’ programme for regional revival is being implemented?

Yes and no. Some of the elements are definitely in place — but we’ve yet to see a full and conscious commitment to the most revolutionary aspects of his argument.

For instance, he’s not just calling for more funding for research (including translational research) but a sea-change in how it’s allocated. The established approach is “place blind”. This principle is that instead of ensuring a particular geographical spread of resources, the money should go to where the decision-makers think it will be most productively used. That’s sounds fair, but in practice it tends to pile further advantages on those areas that already have the edge on everywhere else. When it comes to R&D that means the so-called ‘golden triangle’ of London, Oxford and Cambridge.

Jones sees this is an example of the Matthew Effect — named after a verse in Saint Matthew’s Gospel:

“For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.”

When it comes to individual funding decisions, choosing a location with top universities, leading-edge companies and a highly skilled workforce maybe entirely rational, but it ignores the bigger picture which is the need to build capacity in more than just one part of the country.

To make that change, geographical neutrality must be abandoned — along with the investment decision models that embed the Matthew Effect in their underlying assumptions. This needs to apply to the funding of skills and infrastructure as well as research. Furthermore all these forms of investment need to be coordinated with one another on the basis of direct knowledge of local economic needs. Thus further decentralisation of decision-making power over these resources is a key test of just how seriously Government takes this agenda. If power-hoarding departments like the Treasury aren’t howling in rage, then we’ll know the reformers aren’t pushing hard enough.

*

Increasing the supply of productivity boosting inputs is only half the battle. Professor Jones emphasises the other half which is all about stimulating demand. As well as the usual ways in which government encourages companies to move to priority areas there is something that it can do directly, which is use its vast power as a policy maker, regulator and purchaser to make markets in leading edge products and services.

That’s exactly what happened with success stories such as offshore wind power. As well as investing in relevant skills, infrastructure and technology development, the government has mandated the purchase of renewable energy at a guaranteed price — thus enabling private-sector investment. With the industry established, competitive auctions for the right to build new wind farms then put pressure on developers and manufacturers to cut their costs. Today, the industry is close to being subsidy free.

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The public sector spends vast sums of money with external suppliers every year — Jones quotes a figure of £255 billion. Government also influences procurement in regulated industries such as energy. Last week, Boris Johnson said that public procurement should be used to support British industry. But it’s important that this isn’t a matter of mere ‘propping-up’ — both central and local government must use its economic clout strategically to nurture clusters of innovation throughout the country.

*

But isn’t this all a tad protectionist? In fact, isn’t it downright statist?

Well, yes, it is protectionist up to a point, but no more so than what our competitors, the Americans, Germans and Chinese, have been doing for decades. The UK, having suffered persistently high trade deficits and multiple currency devaluations, needs to worry less about free trade purity and more about how we’re going to earn our living as a country.

As for the charge of statism, the fact is that the state is, and always will be, the biggest customer in the economy. Big private companies don’t just purchase goods and services on short-term cost calculations alone, they use their clout to influence and develop supply chains that meet their long-term strategic needs. So why on Earth wouldn’t HMG want to do the same?

That’s especially true given the enormous challenges facing us as a nation. Professor Jones mentions the challenge of decarbonising the economy without bankrupting it and also the urgent need for productivity breakthroughs in health and social care. I’d add three further challenges to the list: the controversial goal of building millions of new homes over the next twenty years; the public transport solutions desperately needed to rescue our traffic-choked towns and cities; and the ecological revolution required to restore life to our degraded landscapes and seascapes. 

The idea that the state shouldn’t use its purchasing power to encourage the innovation upon which all this depends is frankly insane.

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By Peter Franklin

Yes, I know the heart bleeds – but there really is a global shortage of places for the seriously rich to put their Earthly riches. There just aren’t enough alternatives to the bog standard option of the bank account.

Indeed, interest rates wouldn’t be at record lows around the world if there weren’t a global glut of cash.

Writing for Axios, Dion Rabouin notes that US companies have “record cash holdings of close to $3 trillion”. Wealthy individuals aren’t doing too badly either:

“The top 1% of U.S. households are holding a record $303.9 billion of cash, a quantum leap from the under $15 billion they held just before the financial crisis.”

Of course, most of us would love to have this ‘problem’. And, in a way, we do. Though the non-wealthy have little or no share in the global money glut, our lives are affected by what happens to it.

Those charged with managing extreme wealth are channeling the cash into places where it can do more harm than good – for instance, the property market where it inflates house prices and rental values. Then there’s the practice of share buyback – in which cash-rich companies buy up their own stock:

“Companies made a record $1.1 trillion in stock buybacks in 2018 and are on track to surpass that number this year.”

Buybacks increase demand and reduce supply, thus pushing up share prices – already inflated by the effects of quantitative easing. The executives can say they’ve ‘added value’ and are rewarded accordingly – not least in the form of ‘tax efficient’ stock options.

Admittedly, the company wouldn’t have the cash for the buybacks if it wasn’t profitable in the first place – but that’s not difficult when you can borrow money at rock bottom rates (QE again), buy up the competition and exploit a monopoly position. The company’s soaring market capitalisation means that the banks are happy to keep lending it money… and so on and on it goes, generating further surpluses of cash for the fortunate few.

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Obviously, none of this is good for the long-term health of the economy – and, for most of us, it’s of no short-term benefit either. What, then, can we do about it? Taxation is an obvious weapon, but the thing about enormous piles of cash under professional management in a borderless world is that they don’t sit still waiting to be punitively taxed.

A slightly different approach is to use tax to disincentivise some of the less desirable uses of the money glut. Property-based assets are an obvious target, because it’s not like we’ll end up with less land if we scare away the speculators. Targeting share buybacks is trickier. While we might want to discourage this and other forms of ‘financial engineering’, we also want to encourage equity investment in productive enterprise – and the finance industry is full of people who can disguise the former as the latter.

Ideally, we’d have such an enterprising, innovative economy that there’d be ample opportunities to invest in growth-generating industries. Established companies would be so threatened by new competitors that they’d invest their profits in business development instead of the complacency of share buybacks. It would also be good to have more rich people with the brains, balls and heart to invest their money imaginatively, courageously and philanthropically. That’d mop up the money glut.

Needless to say, these happy scenarios depend on culture change – which, if it happens at all, is a long-term process. So, in the meantime, is there anything that the state can do to attract excess capital into socially-useful investments?

Visionary public funding programmes of the kind that gave the internet its start are great – but, again, it’s a long-term process. Fortunately, there are some quicker wins to be had – areas where strategic state-led investment can unlock avenues for productive private investment.

Consider the decades of under-investment in the economic infrastructure of our cities beyond London. Addressing key weaknesses – like the state of our non-Londoncentric public transport system – does not require futuristic technologies, but tried-and-tested upgrades that more productive local economies already have.

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The challenge for government – including local government – is to become a credible enabler of private sector investment opportunities. That means an end to the imprudence of politically-driven mega-projects like HS2 and Hinkley point, and a pivot to smaller, less complicated, productivity improvements.

The fact that so much potential has been left locked-up for so long is an indictment of our over-centralised political system and our lopsided national economy. But that can be changed – indeed, it is being changed as local communities are re-empowered and the foundations of a modern industrial policy are put in place.

A new prime minister has an opportunity to shift this work into a higher gear.

There’s an old joke about England’s cities. Ask a Brummie which is the second city of England and they’ll say, without hesitation: Birmingham. Ask a Mancunian, and just as quickly, they’ll say: London. Whatever other problems it may have had down the years, Manchester has never been short of civic pride.

I am not a Mancunian. I’ve never lived there and have no connection with the place beyond admiration and a vague sense of excitement, every time I visit, that it has trams. Nonetheless, I have no hesitation in arguing that if Britain were ever to move its capital, Manchester is where it should go.

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By Phillip Blond

The arguments for moving the capital have become more familiar, as the idea has moved from unthinkable to merely very unlikely; but they’re worth laying out again, if only to show how Manchester might help us address them.

At the moment, the vast majority of power in Britain – political, cultural, financial – resides within a couple miles of Nelson’s Column. The result has been a sharp divide between London and the rest, with the Westminster bubble treating much of the country as a strange foreign land. It’s meant a lop-sided economy, in which wages, productivity and house prices in the over-heated south east have soared into the stratosphere, while those in the rest of the country have fallen behind: average wages are more than a third higher in the south east of England than they are in the north west, and while the area around London ranks as one of the wealthiest in Europe, productivity in much of the north is now on a par with the former communist parts of eastern Germany.

And it has fuelled policy choices that have made this divergence worse: witness the way London always seems to have two or three major new transport schemes on the go, even as the North awaits electrification or new trains that are not, quite literally, buses on rails.

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Luckily, there’s one thing the government can do to break up London’s stranglehold on British life: move itself. Shifting the government to another city wouldn’t just mean shifting 650 MPs and their staffs, but vast numbers of civil servants, journalists, lobbyists and other groups that cluster near political power. That’s the sort of GDP that could offer a major boost to a regional city – but which London, with its finance and film and tech industries, could lose without skipping a beat.

So why Manchester? One of the most compelling arguments in favour of shifting the government there isn’t about Manchester per se, but about the region around it. The city is slap bang in the middle of the urban North, with Liverpool, Sheffield, Leeds and umpteen smaller cities all lying within a radius of about 40 miles (roughly the length, as it happens, of London’s Central line). Backed up by the right infrastructure investment, an intervention in Manchester – unlike any other city – could boost the economy right across this region.

Such infrastructure investment has not, of late, been forthcoming. But this is the second argument for moving the capital to Manchester. Historically, the government and its civil service have found it rather easier to grasp the case for, say, London’s £15bn Crossrail service than it has for improved regional bus services or a functioning Trans Pennine Express. Once they found themselves commuting from Stockport or Huddersfield, though, their investment priorities are likely to magically shift.

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By Peter Franklin

All this was the central insight of George Osborne’s Northern Powerhouse policy: that there are 10m people in the overlapping conurbations of the M62 corridor, and that if you can fix the economy of those cities, you’ve gone a long way to solving Britain’s productivity puzzle. The policy never worked, because it never really happened – but the theory remains sound, and moving the government to Manchester would finally make it a reality.

There’s another, more philosophical argument for making Manchester the capital. The history we’re taught at school, and through the choices of TV commissioners, is that of the kings and queens and prime ministers. The fact our politics is conducted in the Palace of Westminster, with all the pomp and ritual that comes with it, reinforces the sense of continuity with all that: it suggests that government is something that other people do to you.

But there are other histories, which aren’t as widely taught, yet which cast our national story in a very different light. The radical history of the fight for democracy. The economic history of the industrial revolution, and the social history of those whose lives were transformed by it. Manchester was not only the site of these histories, but was created by them. The first city of the industrial revolution, its physical form was created by the needs of the cotton trade; its politics by the fight for parliamentary reform and the backlash in the form of the Peterloo Massacre of 1819.

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Has the Left weaponised Peterloo?

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If London is the home of the British establishment, then Manchester is the heart of Britain’s radical history. It’s the perfect place to reconnect our politics with those other stories – the ones that say government is about us, not them.

Moving the capital would not magically erase the economic and social divides that run down this country like a canyon (you’d think, if things were that simple, we would have at least talked about it). But it could separate the political establishment from the financial one, making the latter less likely to influence the former merely by virtue of being at the same dinner parties.

Manchester, as its self-image suggests, already has all the ingredients to be major global city. It wouldn’t be one of those “…what?” capitals like Brasilia, Canberra or Bonn. It has one of the finest cultural offerings this country can offer – an abundance of fine Victorian architecture and top-ranked universities; places such as the Whitworth Gallery and Royal Exchange Theatre – and its music scene and football teams are world famous. It could be Washington to London’s New York, spreading the wealth and the power, and giving this country two major world cities rather than one so over-heated it’s in danger of spontaneous combustion. And it’s right in the middle of the country, next to a major international airport.

The old joke is right: England’s second city really should be London.

The quotation is attributed to Napoleon Bonaparte, who knew a thing or two about moving the world. His words have been endlessly re-quoted – in countless articles about the irresistible rise of today’s China as an economic, technological and military superpower.

It’s not all hype, of course. Many of the ‘killer facts’ really are true. For instance, China really did use more concrete in three years (2011-13) than America did in the entire 20th century.

But however impressive the scale of Chinese investment and technology, it’s important to realise that the People’s Republic is not omnipotent.

Consider the Belt and Road Initiative, a vast programme of actual and proposed infrastructure investment designed to link-up markets across the Eurasian landmass and beyond. In theory, the sum total of investment could reach $8 trillion; in practice the initiative is already running into trouble.

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China is railroading its exports through Europe – literally

By Peter Franklin

Writing for Bloomberg, Mihir Sharma, focuses on the political backlash against China’s BRI investment in Malaysia:

“In many ways, China’s stumbles in Malaysia are exactly what BRI skeptics had always warned would happen in countries across Asia. Projects that might be easy to execute in China would run into delays and cost overruns in less-regimented countries; growth in debt, deficits and Chinese immigration would spark political opposition; and, when a new political leadership cancelled those projects, bilateral and multilateral tensions would spike.”

Malaysia is not alone. Other Asian and European countries are also having second thoughts:

“China has a capital surplus that needs to go somewhere. But, if it wants its investments to be sustainable, China will have to behave in these countries a lot more like the Western capital it seeks to displace. That means being cautious, cooperative with local capital and civil society, and respectful of political sentiment, even from dissidents.”

Needless-to-say, democratic give-and-take isn’t exactly exactly a ‘core competence’ of the Chinese government. The input of western partners in the Initiative is looking more important than ever.

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How Brexit Britain could help China build a new world

By Peter Franklin

Another area in which Chinese economic policy has had a shock-and-awe effect is state investment in leading-edge technology. Examples include quantum computing, artificial intelligence and driverless vehicles.

The gaps in China’s technological prowess get rather less attention. Here’s an earlier Bloomberg article, in which Adam Minter highlights an especially surprising example:

“Semiconductors are the building blocks of electronics, found in everything from flip phones to the servers that make up a supercomputer. Although China long ago mastered the art of making products with semiconductors produced elsewhere (the iPhone is the most famous example), it wants to move beyond being a mere assembler…

“…China is currently the world’s biggest chip market, but it manufactures only 16 percent of the semiconductors it uses domestically.”

Further reading

China’s taking a quantum leap in its tech rivalry with the West

By Peter Franklin

With western trade policies taking a Trumpian turn, acquiring chip technology from other countries is going to be harder than ever. However, developing the technology at home also presents a challenge:

“For decades, labor-intensive industries – such as assembling mobile phones – were the route to riches in China, attracting investment from entrepreneurs and bureaucrats alike. Making semiconductors, by contrast, requires billions in up-front capital and can take a decade or more to see a return.”

Minter gives the example of Intel which invests billions of dollars in R&D every year. As important as public investment is at the very frontiers of technology, one has to question whether the state can substitute for product-orientated innovation by companies who know their business better than any government could. For all its flaws, the western model of capitalism still has some key advantages. 

Of course, in questioning the idea of an unstoppable China it is important not to go to the opposite extreme. Despite its many problems, including horrendous pollution, growing personal debt and its deep social inequalities, China is a giant, it is awake and it will continue to move the world.

Then again, that makes the country’s weaknesses all the more important.

Further reading

Communist China's class-ridden society

By Peter Franklin

What I should have added, however, is that the company is based not in London, but Coventry in the West Midlands.

The Midlands are part of Britain’s ‘flyover country’ – the equivalent of rustbelt and red state America. Or at least that’s the way they’re seen by the metropolitan elites, for whom ‘the provinces’ are an economic and cultural drag on London’s global success story. To the extent that the ‘national’ media covers the rest of the county, it is to report on bad news.

Fortunately, there are some honourable exceptions and one of them is Tom King of Sky News, who writes about the good economic news coming from the Midlands:

“Just one national newspaper has bothered reporting plans from Meggitt, the defence and aerospace contractor, to build a £130m ‘super-site’ in Coventry that will support a similar number of jobs.

“Elsewhere in that city, Chinese company Geely recently opened a £325m facility to build electric taxis, employing 1,100 people.”

While the London establishment frets over Brexit, the Midlands have been getting on with business :

“During the three months to the end of February, the biggest drop in unemployment anywhere in the country was in the West Midlands.

“The East Midlands, meanwhile, has an unemployment rate lower than the national average.

“And both are seeing more job creation than anywhere in the country outside London. Between September 2016 and 2017, the most recent regional comparisons available, 74,000 jobs were created in the East Midlands and 95,000 in the West Midlands…

“Both regions remain strong in manufacturing with more people employed in ‘production’ in the East Midlands, as a proportion of the labour force, than anywhere else in Britain.”

As more and more people discover that the Midlands are capable of supporting human life, property prices there are heading upwards – though, happily, they remain far below the vitality-destroying levels of the capital:

“The estate agency and property consultancy Knight Frank published a report late last year, entitled ‘The Birmingham Boom’, highlighting the significant number of new businesses being formed in the West Midlands and in Birmingham in particular.

“It cited how the city has become the destination of choice for businesses relocating from London due to the cost of the latter…

“The best-known example is HSBC, whose ‘ring-fenced’ UK bank will be headquartered in Birmingham, involving the relocation of 1,000 well-paid jobs to the city.”

Could we be seeing a structural change in the UK economy – a long-term economic revival of the country beyond south east England? It is striking that, since 2010, the previously chasmic north-south gap in job creation has all but disappeared.

Certainly, it’s vital that the media wakes up to the economic potential of the Midlands and the North. For several decades, politics has been distorted by a narrative that locates the UK’s economic future in only one part of the country. As a result, undue emphasis has been placed on indicators like the buoyancy of the London housing market and its stock exchange.

That’s why successive UK governments have been overly-welcoming of speculation in UK property and dubious take-overs of UK companies. Not only have such ‘investments’ done nothing (or worse) for productivity, they’ve sucked-in exchange rate distorting flows of foreign capital. The long-term consequences of an artificially overvalued Pound can be seen in the UK trade figures – and in the damage done to those parts of the country that are especially dependent on manufacturing.

Following the financial crisis, and then Brexit, there have been ‘corrections’ to the value of the Pound – helping to redress the balance. However, in the long-term we need a geographically-unbiased economic policy.

We live in a political culture where policy follows PR. That’s why it’s so crucial that the media reports on economic good news from all parts of the country. Politicians love feel-good stories, especially those they can associate themselves with. If these can be had from locations beyond the Great Wen, economic policies will be tailored accordingly.

In the big finish to the 2008 Olympics in Beijing, the Bird’s Nest stadium was invaded by Boris Johnson (then Mayor of London), Leona Lewis and a brand new London bus (above).

London was clearly proud of the New Routemaster – a 21st-century update on of the iconic red doubledecker – and wanted to show it off to the world. Its hybrid diesel-electric engine, however, was no more than a nod to a better future.

To see what that might look like, we have to go back to China, where all-electric buses are transforming public transport.

Jeremy Hodges reports on this revolution for Bloomberg:

“The numbers are staggering. China had about 99 percent of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17 percent of the country’s entire fleet. Every five weeks, Chinese cities add 9,500 of the zero-emissions transporters—the equivalent of London’s entire working fleet, according Bloomberg New Energy Finance.”

The only reasonable response to these numbers is “wow!’ London might also like to ask itself whether it, er, missed the bus.

Of course, a decade ago all-electric buses were still seen as being a long way from going mainstream. Then again, you sometimes have to make the future happen:

“A decade ago, Shenzhen was a typical example of a booming Chinese city that had given little thought to the environment. Its smog became so notorious that the government picked it for a pilot program for energy conservation and zero emissions vehicles in 2009. Two years later, the first electric buses rolled off BYD’s production line there. And in December, all of Shenzhen’s 16,359 buses were electric.”

It is true that China’s air pollution problems are so bad that only drastic action will do. Nevertheless in acting with an appropriate scale of ambition, the Chinese are not only improving the environment, they’re also creating huge export opportunities:

“Other cities are taking notice. Paris, London, Mexico City and Los Angeles are among 13 authorities that have committed to only buying zero emissions transport by 2025.

“London is slowly transforming its fleet. Currently four routes in the city center serviced by single-decker units are being shifted to electricity. There are plans to make significant investments to the clean its public transport networks, including retrofitting 5,000 old diesel buses in a program to ensure all buses are emission-free by 2037.

Not coincidentally, production of that other iconic London vehicle – the black cab – is also going all-electric. Also worth noting is that the manufacturer, the London Taxi Company, has relaunched as LEVC (the London Electric Vehicle Company). Oh, and these days, it’s a wholly-owned subsidiary of Geely, a Chinese company. Is that enough straws in the wind for you?

The West has an awful lot of re-thinking to do – on the environment, on transport and on industrial policy too.

We also need to rethink our basic assumptions about China. The idea that world-changing technology is developed by the West and copied in the East is now badly out of date. 

Recommended reading

Who wants to buy the products of 'Beijing Analytica'? Many of us (probably).

By Peter Franklin

The idea is that, free of EU legislative constraints, a right-wing Conservative government would slash spending, cut taxes and rip-up regulation.

Though they’re not in a majority, the Conservative Party does have its free market fundamentalists who’d love to do all of those things – but why is Singapore held up as the model?

It’s a question that Matt Bruenig asks in a piece for the People’s Policy Project. He begins with the conventional answer:

“In the Heritage Foundation’s Index of Economic Freedom, Singapore ranks as the second most ‘economically free’ country in the world just behind Hong Kong.”

A small island nation of about 5 million people and very few natural resources, Singapore is now one of the richest countries in the world and a centre of global free trade. But is it really “one of the closest countries to the capitalist ideal”? Not if you equate capitalism with the private ownership of capital:

“The Singaporean state owns 90 percent of the country’s land. Remarkably, this level of ownership was not present from the beginning. In 1949, the state owned just 31 percent of the country’s land. It got up to 90 percent land ownership through decades of forced sales, or what people in the US call eminent domain.

“The Singaporean state does not merely own the land. They directly develop it, especially for residential purposes. Over 80 percent of Singapore’s population lives in housing constructed by the country’s public housing agency HDB. “

And there’s more than property in the state’s investment portfolio:

“…there are the state-owned enterprises, which they euphemistically call Government-linked Companies (GLCs). Through its sovereign wealth fund Temasek, the Singaporean government owns a large share (20% or more) of 20 companies (2012 figure). Together these companies make up 37% of the market capitalization of the Singaporean stock market.”

Bruenig calculates that if, relative to GDP, the US government had matched Singapore in building up a sovereign fund, then it would be worth $12.4 trillion. That’s not quite as big as the US national debt, but it’s in the same ballpark.

For these and other reasons, Bruenig believes that Singapore has been misrepresented:

“Call me old-fashioned, but I don’t generally associate state ownership of the means of production with capitalism.”

On the other hand, the Singaporean state spends a remarkably small proportion of the country’s GDP – less than 20% in 2017. That’s roughly half US or UK state expenditure levels.

As for Singapore’s sovereign wealth, is a government that builds-up assets less capitalist than one that runs-up debts?

I would say not – especially when those assets are accumulated in the process of making strategic investments in the country’s economy – something that Adam  Smith, the father of free market economics, was entirely cool with.

And where land is in short supply, public ownership may be the best of way of stopping rentiers using monopoly control of that supply to suck value out of the productive part of the economy. After all, it’s not as if private ownership of land helps to make any more of it.

When the state acts to make markets work better, we shouldn’t regard that as anti-capitalist. An enterprise economy should be one in which everyone is enterprising – including the government.