Then, in 2020, everything changed. The outspoken CEO criticized aspects of the Chinese Communist Party’s policy during a speech in Shanghai. Soon after, he disappeared from public view, in the 21st-century equivalent of the Cultural Revolution’s practice of sending big-headed officials to farms in remote provinces. It was all part of Xi Jinping’s “Common Prosperity” drive, which was intended to check the mushrooming powers of China’s tech oligarchs.

But last week, to the surprise of many, Jack Ma re-surfaced at a business summit hosted by Xi. There he was, clapping away, after five years of exile. The summit itself was the first of its kind in six years, and included more tech entrepreneurs than the previous one. Although the star of the show was DeepSeek founder Liang Wenfeng, Ma’s reappearance seemed to indicate that the chill was over, and that the Party was willing to play with the oligarchs once more. After Xi reminded them that they were to “actively fulfill social responsibilities” and “promote common prosperity”, reports in official media suggested that the government wanted to support the private sector’s expansion.

For years China has been in a slump. Ever since the government-engineered deflation of the real estate sector hit households hard, most Chinese have reined in their spending. This has slowed down its rapid convergence with the US economy, with some suggesting that the country may never catch up. Western analysts tend to conclude that the Chinese economy is saddled with structural deficiencies that may block it from ever becoming a global powerhouse.

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China's unstoppable STEM army

By Sam Dunning

But perhaps they’ve misjudged the CCP’s motives, failing to see that the setbacks may not result from policy errors but from deliberate plans. Puncturing the real estate bubble — painful though that has proven to be, since property remains the main savings vehicle for Chinese households — formed part of Xi’s strategy to reallocate resources towards “high-quality” growth, in particular in emerging tech sectors like AI and renewable energy. The Chinese leadership appears to have traded quantity of economic output for quality, with the idea that re-orienting resources to emerging sectors will serve the country better in the long run.

Judging from recent activity in the markets, the strategy may well be working. Although structural problems continue to beset the Chinese economy — including a deflated property market, weak consumption and an excessive reliance on manufactured exports — reports suggest that it may now be turning a corner. Over the New Year holiday, train travel and movie attendance set new records. And while real estate prices are still stagnating well below their 2020 peaks, the market may now have bottomed with activity in Shanghai starting to heat up again.

Meanwhile, the global winds may now be blowing in China’s favor. Since the DeepSeek breakthrough, money has begun flowing out of the US. The Magnificent Seven, which had previously powered the US stock market to a record share of total capitalization, have now started to slide, and the US market as a whole has hit a plateau. In place of the Magnificent Seven are China’s “Terrific Ten” tech stocks, which since DeepSeek’s “Sputnik moment” have powered the Hang Seng index to a double-digit surge. If this continues, Chinese households may soon feel they can afford to finally loosen their purse strings.

Arguably, Donald Trump’s policy turns are inadvertently strengthening China’s momentum. Having abandoned Joe Biden’s plans for a renewable energy transition, Trump’s administration has left one of the world’s fastest-growing sectors to Chinese producers. Its renewable energy and EV companies are aggressively expanding sales in almost all markets, most significantly in rapidly growing developing-country markets, and the effect is already showing in their share prices.

With sales slumping, Tesla had pinned all its hopes on its forthcoming automated driving feature. Then, out of the blue, China’s BYD introduced its ‘’God’s Eye” driver-assistance feature for free in all its cars. If the competition between these two auto giants is anything to go by, the global center of technological dynamism appears to be shifting. Whereas Tesla’s stock is down some 16% in the last month, BYD’s has risen by more than 40%.

It appears the Chinese leadership is now trying to sail into these tailwinds, with the rehabilitation of Jack Ma being a powerful symbol of its new openness to business, and particularly to tech entrepreneurs. Following last week’s summit, the central bank announced it would be implementing measures to make it easier for Chinese firms to obtain capital. And China has for months been talking of some major stimulus for the economy. But while there have been some tentative steps in this direction, we’re still awaiting a big announcement.

A key moment will probably come next week, when China holds its “Two Sessions” meeting of both the National People’s Congress and the Chinese People’s Consultative Congress, at which the government is expected to elaborate on the stimulus measures it announced late last year. If the Communist leadership is serious about supporting business, this would be the obvious moment to make it clear.

While China is aggressively expanding its trade ties and diplomatic presence around the world, the US is pulling up the drawbridge. Crucially, America is aping the old Chinese model in a manner that could prove self-destructive. Traditionally, China has been considered less investable than the US because it’s run by a party that can clamp down on business at any moment, unlike the free-market and institutionally stable West. However, the US is now run by a fickle oligarch who changes policy on a dime. At least in China one can discern a strategy — namely, the survival of the Communist regime — whereas in the US, it’s unclear whether Trump has an actual plan, or whether he’s motivated entirely by whims and Tweets.

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Keir Starmer's foolish China strategy

By Elizabeth Lindley

The apparent Chinese approach of engineering a downturn to weed out low-quality activity and then re-orient resources to dynamic sectors is hardly groundbreaking. Although the dominant neoclassical theory of economics generally regards any fall in output as a sign of economic ill-health, less orthodox schools such as the Austrians have always seen recessions as necessary to the process of renewal – a moment of creative destruction. In fact, one could argue that’s precisely what Elon Musk is trying to do with his DOGE experiment: induce a recession by dramatically cutting government demand, in the hope a more innovative private sector will then be free to pick up the slack.

Yet the similarities between the Chinese and American approaches probably end there. The Trump and Musk approach, which focuses on deregulation and tax cuts, will probably lead to greater capital concentration. Already, it’s entrenching the power of oligarchs, particularly those from the tech sector. China, by contrast, has reminded its oligarchs who is boss.

In the Seventies, there was an arcane Marxist debate about the character of the state in capitalist societies. The instrumentalists believed the state was controlled by the capitalist class which used it to advance its business interests, while the structuralists argued the state ruled in the best interests of the class when it had the relative autonomy to implement policies which, if harmful to individual businesses, were good for the economy. China might just be the archetypal autonomous state presiding over a pastiche capitalist economy, whereas the US is now run by businessmen using the state as an instrument to advance their version of capitalism. Which model is superior remains to be seen. But investors, previously all in on America, are now hedging their bets.

The Mods were the Modernisers — reformists who wanted to ‘detoxify’ the Tory ‘brand’. They talked like a bunch of PR consultants, because that’s what a lot of them were. They saw themselves as forward-looking, sophisticated and socially liberal. Unlike the old Tory ‘Wets’ they were economically liberal too and moderately Eurosceptic (but minus the Thatcheresque baggage). Their message to the party was change or die.

They were opposed by the Rockers (also known as the Headbangers), who thought that change was death — a betrayal of everything that real Conservatives stood for.

The split wasn’t without its complications. There were those, like William Hague (Tory leader from 1997 to 2001) who tried to straddle the divide. However, the messiness of the compromises only increased the bitterness of the conflict.

At the time, I was a very junior apparatchik working in Conservative Central Office. During the 2001 leadership contest, I remember the partisans of Michael Portillo — the candidate of the Mods — striding around the building as if they already owned the place. Staffers were quizzed as to their loyalties and with a smile I told them I’d be “voting for Michael” — the joke being that the only person standing against Portillo at the time was the party chairman and Hague loyalist, Michael Ancram.

Further reading

Not so rosy: the legacy of the Coalition government

By Peter Franklin

In the event, neither of the Michaels would become leader; instead, the crown went to Iain Duncan Smith, who back then was the Rockers’ Rocker. That set off a further round of Tory Wars, followed by a truce under a third Michael (Michael Howard) and finally the ascent of David Cameron.

By that time, and with the scent of power once more in Tory nostrils, the whole Mods versus Rockers thing was burning out. The factions parked their scooters and motorbikes and looked forward to their ministerial cars. In any case a new divide was beginning to open up — Leave versus Remain — and, as we know, that would change everything.

And yet there’s one aspect of the old conflict that still persists. It’s about how to build an election-winning coalition. The true blue Tory heartlands aren’t enough on their own. To get from second place to first, the Conservatives need to reach out to another section of the electorate. But which one? For the Mods the answer was always obvious — people rather like themselves: young(ish), university-educated professionals. The Rockers wanted an alternative coalition, but as to what it might be they had no convincing answer — which is why they lost their war with the Mods.

However, in the 2016 Brexit referendum and the 2019 general election, Dominic Cummings, Boris Johnson and Michael Gove (all former Mods, ironically) cracked the problem. They forged an alliance not between the Tory Shires and Cool Britannia, but between the Tory Shires and the Red Wall — the supposedly uncool towns and suburbs of Northern England, the Midlands and Wales.

Further reading

Can the Tories cling on to the Red Wall?

By David Jeffrey

Daniel Finkelstein — associate editor of The Times and Peer of the realm — is a Mod grandee. He was a senior advisor to William Hague and David Cameron and, among many other contributions, wrote their best lines.

Last week, he used his Times column to attack the un-Moddishness of the Government’s political and economic strategy. This is the policy of “levelling-up” — i.e. pumping investment into left-behind parts of the country to achieve a lasting realignment of wealth, power and party loyalties. Can it succeed? Finkelstein has his doubts:

“The supposed political dividend for the Tories is that it will enable them to win and retain support among older, less prosperous, less well educated (note: not less intelligent, just less well educated) and more culturally conservative voters.

“I have always questioned whether this strategy is sustainable in the long run.”

Well, let’s make some long run comparisons between the Cameron era and what followed. In both 2010 and 2015, David Cameron and George Osborne went with the Mod strategy of appealing to younger, more prosperous, well educated and culturally progressive voters. Up to a point, they succeeded. In 2010, they increased the Tory vote share from 32.4% to 36.1%. In 2015, they pushed it up a bit further to 36.9%. Not too bad, but a long way from breaking through the 40% barrier.

It was Theresa May who managed that — getting 42.4% of the vote in 2017. Two years later, Boris Johnson pushed the share even higher to 43.6%. Add in the Brexit referendum as well — and it seems obvious to me that the Moderniser’s coalition is significantly smaller than the populist alternative.

Of course, in many ways the snap election of 2017 was a fiasco. While the blame for the Conservative campaign has been pinned on Nick Timothy alone, the fact is that it was disastrously conceived and executed in almost every respect. And yet despite the omnishambles, the Tory vote share still soared to levels not seen since 1992 — a stress test of the soundness of the underlying strategy.

The competent but uninspiring campaign of 2019 provided further confirmation — delivering a majority of 80 and a stunning gain of 50 seats across the Red Wall regions.

Further reading

Whose side is Labour on?

By Paul Embery

OK, that’s the politics, but what about the economic sustainability of the populist path? Can the levelling-up agenda really deliver the jobs and prosperity that the Conservatives have promised to their new supporters?

Finkelstein’s core criticism is that the people who create prosperity are not those who the Government is trying to appeal to. Therefore the Government’s approach is fundamentally incoherent:

“Social liberalism and economic prosperity go together. Whatever the political pros and cons of combining levelling up with an attack on metropolitan values, I don’t think it will work economically.”

Indeed, “in order to match the success and power of metropolitan areas, non-metropolitan places need to become more . . . metropolitan.”

It’s a thought-provoking argument, but is it a sound one? It strikes me that it rests on three basic assumptions. Firstly, that there is indeed a ‘Creative Class’ whose presence is the vital determinant of whether an area is successful or not. Secondly, that left-behind areas can only become more successful if they become more metropolitan. And thirdly, that the values of either the Government or left-behind Britain are so culturally conservative as to have a negative impact on the economy.

Let’s have a look at each of these in turn.

Further reading

Test article

By Peter Franklin

Firstly, the concept of a crucially important Creative Class.

Finkelstein gets this from the theories of Richard Florida, an American academic. The Creative Class are the artists, innovators, entrepreneurs and other ground breakers who pioneer the regeneration of up-and-coming neighbourhoods, start up new businesses and generate the excitement on which economic revival depends. These are the agents of change and if you can lure them to your community, then all sorts of other good stuff will follow. Or, as Finkelstein puts it:

“To be successful, places need to attract and keep members of this creative class. Florida suggests one way to do this is to improve night life, cultural attractions and a reputation for tolerance and diversity.”

Nice theory, but is it true? Finkelstein mentions one sceptic — Edward Glaeser — who points out that cities cannot live on cool alone and also have to attend to the dull stuff because “creative people have children too”. Glaeser’s critique goes rather further than that, however.

He crunches the numbers and finds that if the creative class is narrowly defined — i.e. the authentic arty-farty types — then, no, it doesn’t make much difference to economic outcomes. Yes, the trendsetters are, by definition, the first to move into an up-and-coming area. But that doesn’t mean they’re the reason it’s up-and-coming. They’re like the robins and blackbirds who show up when a garden is dug and planted. Perfectly charming, but it wasn’t them who turned the sod.

This is why using public money to build the sort of buildings that boring people think might be attractive to interesting people doesn’t work. Funding committees do love an ugly shed filled with second-tier modern art and less-than-compelling museum exhibits, but theirs is the logic of the cargo cult. Even if the attractions weren’t so unattractive, the understanding of the cause-and-effect is completely wrong. Bureaucratic fiat won’t turn, say, the Black Country into the abode of hipsters — and even if it could, it wouldn’t be much help.

But about the wider Creative Class? On a broader definition, Finkelstein suggests that it could include up to 40% of the population. But at such a large proportion of the workforce, the description loses all meaning — it’s just a fancy label for anyone with skills that command an above average salary. This group is associated with economic productivity, but they wouldn’t get paid what they do if they weren’t.

What makes them productive? Well, with all due respect, it isn’t just down to their innate talents. They are the beneficiaries of an education system that privileges academic over technical qualifications. They live in parts of the country — especially London — that get the lion’s share of public spending on research and infrastructure. And they work in sectors that have been favoured by long-term government policies at the expense of other sectors. For instance, a tax regime that sucks foreign capital into the UK property market and other speculative bubbles is good for landowners and the financial sector, but, thanks to the impact on exchange rates, bad for manufacturers and other exporters.

Further reading

We'd never build another Albert Hall

By Mary Harrington

As for left-behind communities needing to become more metropolitan, the fact is that many of them are metropolitan. This is one of the most urban countries in the world. Beyond our capital, seven of the eight biggest cities in England are in the Midlands and the North.

There’s nothing undiverse about Manchester, Liverpool, Leeds, Sheffield, Nottingham, Newcastle and Birmingham. Their streets are full of sounds, sights and tastes from all around the world. These are university cities too — with big student populations and the nightlife and radical politics to match.

And yet set against comparable cities in France and Germany, there’s a long record of these communities underperforming economically against the national average. That’s not because they’re insufficiently metropolitan, but because they’ve been systematically starved of power and resources. Just look at the ramshackle transport links within and between Liverpool, Manchester, Leeds and Sheffield. Collectively, these cities and their wider city regions form one of the great conurbations of the world. Indeed, as the birthplace of the Industrial Revolution, this is where the modern world came into being. We should regard it as a great national asset, but instead its been marginalised.

One of the best things that Cameron and Osborne ever did was to recognise the potential of the Northern Powerhouse — and to start returning resources and decision-making power to its city-regions. But to keep this progress going in the right direction is a constant battle — Whitehall resistance to the creation of a powerful Transport for the North being a case in point.

Or consider the split between central and local government spending over the last 25 years. Tom Forth shows us that of the five biggest European economies, Britain is the only one where the share of GDP spent by central government has grown, while that spent by local government has shrunk. Whether or not one believes that left-behind Britain needs to become more metropolitan, it’s an unfortunate metropolis that can’t direct its own future.

Further reading

Why did a rundown mining town become a safe Tory seat?

By James Bloodworth

But of course Daniel Finkelstein isn’t just talking about the places, but also the people — and, to his mind, left-behind Britain is lacking in the right sort. “The problem with the metropolitan ‘elite’ isn’t that there is too much of it”, he says, “it’s that there aren’t enough members of it, drawn from a wide enough background and living in enough places.”

If by ‘elite’ he means graduates, then we produce lots of those already — and from the most impressive line-up of universities of any county outside America. Where Britain is at a clear disadvantage, however, is in intermediate skills — i.e. those that provide the best opportunities for the non-graduate population. As a 2016 report from the Centre for Cities shows, skills provision in Britain outside London and the South East is abysmal — comparable to the poorest parts of southern and eastern Europe.

That we went to such great lengths to expand our the university system while neglecting technical education is a national scandal. The current Government has indicated a long overdue change of direction, but why so many decades of neglect? It is because the metropolitan elite used their position of centralised control to invest in people like themselves — while sidelining everyone else.

It didn’t have to be this way. The imperatives of the knowledge economy could have been interpreted more inclusively. Other countries, like Germany and Switzerland, created technical systems that have have spread economic opportunity instead of concentrating it. We could have done the same, but chose not to.

A more even spread of investment in skills — and also infrastructure and R&D — would also encourage a more even spread of the graduate workforce, which is not in short supply, just overly bunched-up.

*

Finally, the question of values.

I don’t believe that showing a bit of respect for left-behind communities — their aspirations, their identities, their loyalties — constitutes an “attack on metropolitan values”.

Nor does it threaten economic development. Regional economies are geographically and sociologically complex. There are the urban centres, with their youthful, transient, bourgeois bohemian populations. And then there are the outer suburbs, smaller cities, outlying towns and countryside that are necessarily different in character. That doesn’t mean that they can’t coexist or don’t need one another or won’t share in the same prosperity. Economies thrive on diversity and that includes viewpoint diversity. After all, it works pretty well in London and the surrounding region. Edgy, achingly hip neighbourhoods like Dalston are just a short commute away from the Essex outskirts where a working class conservatism holds sway instead.

It was in seats like Romford and Upminster where the Conservative revival started back in early 2000s. At the time, with the Tory Wars still raging, I remember the Mods telling us to disregard these results — because such areas were not typical of the nation as a whole.

However, it turned out that they were a prototype for the leave-voting seats where Boris Johnson won his thumping majority last year. Essex showed that working class electorates will respond positively if they feel the Conservative Party respects their small-c conservative values and also cares about their economic well-being. Being linked into the engine of prosperity that is London, meant that it was easier for Essex Man and Woman to believe this.

Hundreds of miles from the capital, it took the voters of the Red Wall a lot longer to be convinced. The Conservatives had to prove themselves. Getting Brexit Done was the first part of the deal and, now, levelling-up is the second.

These new Tory voters just want the same opportunities as their southern counterparts. And there’s no reason why they shouldn’t have them. What already works in London and the South East can work elsewhere — and to everyone’s benefit.

But will the party adjust its offer accordingly? Or will it pretend that their new voters were magically converted after 40 years to the cause of unadulterated neo-liberalism, lower taxes, deregulation and zero investment in their neighbourhoods?

So far, and despite the anguished words of Thatcherite commentators, Number Ten has played a very smart game.

We’ve had a massive infrastructure commitment – HS2 — which will hugely enhance the capacity and connectivity of the North. There’s the very sensible immigration policy that limits the supply of wage-killing cheap labour while keeping the UK open to the high skilled workers that we need. There are signs that the ‘Green Book’ Treasury rules for public investment will be overhauled to address their bias to London and the South East. A serious, though sadly failed, attempt was made to save FlyBe — which at least indicates a willingness to intervene on behalf of regional economies. And if the Treasury is no longer the home of orthodox austerity, then that too is to be warmly welcomed.

So reasons to be hopeful.

Suggested reading

All hail Good King Boris

By Maurice Glasman

And yet the challenges are enormous. To make a real difference to their new voters’ lives, the Government needs to act on an unprecedented constructive scale. This runs counter to Conservative sensibilities – especially the abiding faith that the market will provide. But the evidence of market failure in the last 50 years is all around us — in the regional and structural inequality of our country.

So what should a reforming, radical, Red Tory government actually do about it? Here are ten policy areas and the changes we need to see:

1. Think local

If place is the biggest penalty that the working classes pay, then place is where we must begin. We desperately need competent, driven local authorities that have the power, depth and range to decisively transform the places they are the stewards of. Unfortunately, at present we have fractured and dispersed control between different levels of local Government, Local Enterprise Partnerships (LEPs), Police Forces, health bodies, etc. So we need to abolish as many local quangos as possible and fold them into a unitarised powerful system of local government.

These single tier authorities should be empowered to be wholly transformational. For instance, by giving them control over things like Job Centre Plus — reforming it around the needs of the local labour market, and by embracing regional tax raising powers after all we have conceded varying income and corporation tax to Scotland and corporation tax to Northern Ireland and more people live in the North than in either of those nations combined.

Suggested reading

What's the point of central government?

By Peter Franklin

Robert Jenrick is one of the most gifted ministers in the Government, but the department he has recently inherited (Housing, Communities and Local Government) hasn’t had visionary or ambitious leadership since Greg Clark left in 2016. Ministers have basically sat on the devolution agenda for the last four years, delivering proxy versions of the Manchester deal.

We need a Minister who can advance this at the scale it requires. No more small amounts of money distributed through endless competitive tenders to negligible effect please – aggregate large amounts to cities and counties if they can raise their game and come up with credible, yet ambitious, plans to transform their communities.

2. Level up health outcomes

The 10-year plan for the NHS recognises that chronic conditions in an aging population account for the vast majority of the huge upsurge in A & E attendance. Nationally, Accident and Emergency visits are up 22% over the last nine years. That’s almost 24 million attendances.

Yet nobody has pointed out the obvious: the NHS can only do so much about the long-term health conditions driving these admissions, like obesity, dementia or diabetes. The NHS remains an acute service that struggles to help anyone outside of a hospital ward.

Given that ‘a boy born today in the most deprived area of England can expect to live about 19 fewer years in good health and die nine years earlier than a boy born into the least deprived area.’ We need a new localised health institution that genuinely tackle such a pernicious inequality.

Understanding of public and total population health has increased so has an appreciation of the factors that decisively influence these outcomes. Economic growth is the most important of these, but things like education, air quality, housing, infrastructure and civil society are also decisive.

Suggested reading

The EU is crippling our NHS

By Giles Fraser

So, if the NHS is not, and never has been, in a position to deal with these issues at their root, who is — or ought to be? The obvious answer is the local state. Properly figured it, not the NHS is the body for public health in the 21^stcentury.

Any genuine shift to preventative health care requires a new partnership between the NHS and properly empowered local authorities. If we want to tackle the place-based factors driving unequal health outcomes, then it’s time to devolve centralised health powers to these new institutions.

3. Repurpose our universities

Education is one of the great divides – broadly speaking the ‘anywheres’ get a lot out of the current system and the ‘somewheres’ not nearly enough. The revolution we need in education is not just to distribute it more fairly, but also more appropriately, meeting a wider range of needs. As things stand, employers in the UK invest under half the EU average in continuous training, and investment per person has fallen 14% in real terms since 2007.

Given the impact of technological and other forms of change on the jobs market, life-long learning has to become the norm for the whole population. Enabling the acquisition of new skills means stimulating demand and supply at the same time. At ResPublica, we’ve proposed a compulsory educational contributions scheme paid into by employers, Government and workers that would create the demand.

But who should provide the supply? Further Education, even when it was properly funded, was poorly done. We need to repurpose our universities, so that high-level, short course training is available in every local economy. And we need local authorities to be able to shape those courses to the present and future needs of resident industry.

4. Create the MIT of the North

In 2015, ResPublica called for the creation of a world-leading applied tech university in the North of England — an equal to MIT (Massachusetts Institute of Technology).

I’d initially considered the idea that Oxford and Cambridge might found a shared Northern campus called Oxbridge  (Francois Mitterrand did something like this with the grandes écoles in France). However, the evidence suggests that applied tech is what really drives University-led renewal of regions – so the MIT of the North was born.

More from this author

Where's our ambition for the North?

By Phillip Blond

We had initial interest from the newly elected Government before it was watered down into something that won’t make any difference at all – a heightened degree of collaboration between existing players. This I fear might be the fate of too many of the Johnson grands projets. It’s the big initiatives that can shift the dial.

As I have argued before on UnHerd, our regions don’t only suffer from missing infrastructure, but also from missing people. To prosper, regional economies need to attract and retain the most talented people. Universities are one of the best ways to pull them in — especially when excellence in teaching and research can be translated into highly innovative locally-based enterprise.

5. Invest in joined-up infrastructure

Infrastructure investment can make all the difference, but by its very nature its value is maximised when it joins up with other investments. However, we lack the mechanisms to finance the whole place upgrades that can really turn around a local economy.

Funding a new school here, a new bridge there etc is better than nothing, but also a missed opportunity. There are scores of projects in a city region like Greater Manchester that could generate a decent return, so instead of choosing between them why not do the lot?

If we fund everything in an area that would produce a return of say £5 for every £1 invested we could risk pool all the projects in one single offer, the cost of capital would fall as would the cost of delivery— especially in a global economy with a savings glut and shortage of investment opportunities.

There is no reason we can’t do ‘whole place’ public-private joint ventures that minimise risk, maximise public return and crucially deliver at scale.

6. Relocation relocation relocation

This is a huge agenda, which should include reforms like shifting the tax burden from income to wealth, but I’m going to focus on how we might shift private sector investment out of London and into the rest of the country.

Levelling up isn’t just about how government spends it money — we need change business incentives too. Let’s start with generous tax relief on the expenses of relocation, plus long ‘holidays’ from business rates. The creation of quality jobs where they’re needed most should also be rewarded by the tax system (as opposed to across-the-board cuts in corporation tax). So that business investing outside London can get lower rates of corporate tax.

The same goes for productivity boosting capital investment by offering the most advantageous tax relief possible for that redirection of capital into areas starved of significant investment. Obviously, none of this is consistent with the principle of ‘tax neutrality’ — but I’d rather have a more balanced economy and a fairer country than a neutral tax system.

Suggested reading

Don't scorn Boris's ambition

By Mary Dejevsky

And while we are talking about relocation – the public sector should lead the way. The hard-fought struggle to get Channel 4 out of London should establish a norm for all publicly-funded cultural organisations.

That injunction should apply to any publicly founded body. Whole swathes of Whitehall itself, like the great departments

7. Stop penalising the family

The family is the great ‘unthought’ of modern Conservatism – so consumed it has been by extreme individualism. This can’t be excused as a reluctance to tell people how to live their lives. In fact, we actively penalise family life. Single people without family responsibilities in the UK pay 8% less tax than the OECD average, while single-earner married couples with two children pay 26% more.

The system is especially unfavourable to single earner families just below the average wage. These are the JAMs — the ’just about managing’ and we make their lives much more difficult than they have to be, they pay pernicious marginal tax rates on their income sometimes keeping just 30 pence in the pound of what they earn, if there on housing support its less than 10p.

Only the upper middle class can do what most mothers (and it usually is the mothers) want to do which is stay at home longer to look after their children. A good way to ameliorate some of this would be to make tax allowances fully transferable for parents. And then set out to equalise the pernicious treatment of families under the UK tax system.

8. Home ownership for everyone

Red Tories believe in making markets work for the many not just the few. But you can’t have capitalism for all if most people don’t have capital.

Economically and socially, we suffer from a chronic asset deficit, which Conservatives have ignored for too long. For far too many people, especially the young, wealth is no longer attainable by hard work and prudent saving.

Instead we see a re-feudalisation of society, the division of our country between owners and renters and the permanent subjugation of those who rent to those who own. The leftwing economist Thomas Piketty has warned that the returns from the ownership of capital will, without state intervention, outstrip the rest of the economy (including wages). In the UK we’re proving him right: wealth is growing faster than income and is twice as unequal in its distribution.

Suggested reading

Why home ownership is the real key to progress

By Peter Franklin

We must spread asset ownership more evenly, but how? Compulsory enrolment in pensions has helped, mutualism seems incapable of making a difference, but what else to do? Working within the grain of the British psyche, mass home ownership has to be a big part of the answer.

ResPublica advocates a National Housing Fund that would function as a guaranteed buyer of homes built to rent for ten years. After this period, we could start selling a third of those houses to their original tenants at the value they were when originally rented – thus distributing assets and equity across the country. Ally this policy with land value capture and it becomes even more feasible. Indeed, there’s no reason why local authorities couldn’t do the job themselves.

9. Majorities have rights too

Perhaps the most profound aspect of the liberal dominance of the last few decades is how every site of value production and generation is dominated by the group that is the least representative of the values of the country – liberals. They run the BBC, the Arts Council, the NHS boards, the educational establishment and the civil service. Indeed, virtually every public body has on it an overwhelming majority of if not economic liberals then certainly social ones.

There is little or no representation of social, cultural or religious conservatism. And recent Conservative governments have done nothing to redress the balance. Because in part so many of them are social liberals obsessed with rights-based thinking. But rights never tell you what is right and their deployment only functions to empower the already powerful.

Suggested reading

Our illiberal empire of rights

By John Gray

Rights must be regulated to the order where they belong — secondary or tertiary outcomes of prior shared principles of obligation, duty and care. Yes nobody ever talks about this nor do they ever address the needs of majorities and think instead their cultural and political task is to unhome the beliefs, memories and aspirations of the majorities that made the nation. Little wonder then that they produce enmity, polarisation and fracture.

That must change. This Government must act to ensure viewpoint diversity, legislate for the protection of free speech and recognise that majorities have rights too and that norms need defending and upholding.

The values of the entire nation need to shape our future, not just those of a hostile elite.

10.  Go big or go home

My final test is the key to all the others: ambition. This Government must go big post-Brexit. It has to break free of the austerity-constrained incrementalism that has defined Conservative governance since 2010. This is why we should welcome the alignment of the Treasury with No 10. The Treasury needs to be a driver not a break on reform.

If it makes sense to speak of Boris and virtue, he does have the great merit of thinking big and backing the bets he originally made. His Government will only progress on the basis of constant, impactful, ambition decisions and implementation.

Levelling up the land requires nothing less.

Suggested reading

How the Right lost faith in capitalism

By Giles Fraser

If you doubt me, take a look at the bond market. A bond is a tradable slice of government (or corporate) debt. In normal circumstances, a bond ‘matures’ after a fixed period of time, when the holder gets paid what the piece of paper originally sold for, plus the ‘coupon’ (i.e. the interest on the loan). This determines the bond’s yield. And this is where the madness comes in.

Bonds with negative yields – i.e. that pay back less than the original purchase price when they mature – not only exist, they are becoming wildly popular. Here’s Stephen Letts of ABC with the jaw-dropping numbers:

“The weirdness in financial markets at the moment seems boundless.

“In the past two weeks the proliferation of negative-yielding bonds has erupted — 30 per cent of the global, tradeable bond universe is being sold with a guaranteed loss attached to the coupon. 

“That’s an eye-watering $US16.7 trillion dollars’ worth”

Governments are, in effect, charging lenders to lend them money.

This invites an obvious question: why would anyone agree to a deal like that? Wouldn’t they be better off just sitting on the money?

I’ll try to explain by analogy.

Have you ever had furniture stored in one of those out-of-town warehouses? If so, you’d expect to get your sofa and armchairs back in one piece, but you wouldn’t expect to get, say, an extra armchair by way of ‘interest’ on your ‘deposit’. In fact, you’d have to pay the storage company for the service of looking after your stuff.

That’s the logic behind a negative yield bond – it’s a payment to the issuer to look after your money. But, hang on, why can’t the money be lent out at interest – so that you earn a positive yield upon it?

Well, you could say the same about your surplus furniture. Instead of paying to have it stored, why not hire it out and make a profit?

The answer is that there’s no shortage of furniture; most people have too little living space, not too few things to fill it with. Moreover, the hassle and risk of hiring out your stuff is too much trouble – especially if you might want it back at short notice. It’s just much easier and safer to pay the professionals to store it for you.

Of course, there are many more uses for surplus money than surplus furniture – moving it around is easier too. However, the fact is that there’s more capital floating around the world right now than we can find (profitable) uses for. If this weren’t the case then interest rates wouldn’t be so low.

Suggested reading

Is too much money a bad thing?

By Peter Franklin

Like furniture, bad things can happen to financial wealth that isn’t looked after. It can be stolen, investments can fail, banks can go bust, asset prices can collapse, stock markets can crash. These risks need to be managed – and for institutions like pension funds with vast sums of money under their care, and powerful regulators to satisfy, the cost of that management adds up. By buying bonds for their investment portfolios, they are in effect getting governments (plus some corporations) to manage part of the risk for them. Indeed, demand can be so high and suitable alternatives so unavailable, that bonds sell at zero or negative yields:

An excellent briefing for Bloomberg by John Ainger shows where this is happening:

“Investors have to pay to own more than 80% of Germany’s federal and regional government bonds; almost the entire Danish government market is negative. The U.S. is one of a dwindling number of nations with no negative-yielding sovereign debt.”

In the short term, the recent rapid growth in demand for negative yield bonds is being driven by declining confidence in stock markets and property markets – with investors expecting stock and property values to fall in the near to medium term.

There are other signs that the money market expects a downturn in the economy. For instance, it’s normally the case that yields on bonds that mature in, say, ten years are higher than those that mature a lot earlier. That’s because long-term debt is seen as riskier – there’s simply more time for things to go badly wrong. However, at the moment, it’s the other way round – the short-term yields are higher than the long-term yields. This is called an inverted yield curve. (Don’t confuse ‘inverted’ with ‘negative’, in this context inverted just means that the market is pricing short-term debts as riskier than long-term debt.)

Yield curves have inverted at various points in the past. It’s a classic sign that the market is expecting a recession. However, there’s nothing classic about the current craze for negative yield bonds – the phenomenon barely existed more than a few years ago. What’s happened since is without precedent. As unpleasant as recessions are, we should be much more disturbed by the fact that $16 trillion dollars (and rising) are currently invested in products guaranteed to make a loss.

Suggested reading

Are we due another recession?

By Peter Franklin

A healthy capitalist system is one that can both make a profit and reinvest it profitably. The corporates are still making money, but they no longer seem to know what to do with it. Things have got so bad they’re literally paying the state to take it off their hands.

They’ll be paying their taxes next.

Of late, however, HS2’s headline stats aren’t in miles per hour, but billions of pounds. An initial price tag of £32 billion for the whole project ballooned into an official budget of £56 billion – with the BBC now reporting that a further £30 billion might be needed on top of that. Pessimists fear the final cost could break the £100 billion barrier.

Will Boris Johnson have the guts to pull the plug? Early indications suggest that he might have given way to the usual umming-and-ahhing. But with anything approaching a twelve figure number, you have to ask what we could have had instead.

Suggested reading

Where's our ambition for the North?

By Phillip Blond

For instance, how about a hyperloop? 

A hyperloop is a maglev train that floats inside a tube-enclosed track from which most of the air is sucked out. By drastically reducing air resistance the train is able to achieve extraordinary speeds – something like 700 mph, three times the speed of ‘high speed’ rail.

Does it work in practice though? Elon Musk (who else?) has been developing the technology, and encouraging other companies to get involved with their own ventures. One of these companies is Hyperloop Transportation Technologies, which appears to be on the brink of building the first commercial hyperloop project in the United Arab Emirates.

According to a Gulf News report by Cleofe Maceda, the initial work is already underway:

“The chairman of Hyperloop Transportation Technologies (Hyperloop TT), Bibop Gresta, revealed to state news agency WAM that the hyperloop capsule that will be set up in Abu Dhabi has already left the assembly plant in Spain to the southwestern region in France.

“Gresta said the capsule will be assembled, tested and optimised in the French city of Toulouse before it will be transported to the UAE.”

If that goes well the plan is to build a 150km track all the way to Dubai – with an envisaged journey time of 12 minutes.

And the cost of such an endeavour? Well, the proof is in the construction – but this is what the company is saying:

“Gresta said the cost of the project is estimated to be around $20 million… to $40 million… per kilometre…

“However, Gresta said any money put into the mega project can be recouped in eight to 15 years.”

Let’s take the upper bound of that estimate ($40 million per kilometre) and apply it to the combined track length of phases 1 and 2 of HS2 – 532 km. That comes to $21.3 billion.

Yes, yes – I know: I’m making a back-of-a-fag-packet calculation. We’d need a whole lot of other information for a robust comparison between HS2 and the hyperloop costings: Does the latter include the cost of new stations? What are the comparative capacities of the two systems? What about the environmental impacts?

Then there’s the fact that while high speed rail is a tried-and-tested technology, the Abu Dhabi to Dubai hyperloop would be the first commercial link of its kind anywhere in the world.

Suggested reading

Who wants to be 'boosted' by Boris?

By Freddie Sayers

But to my mind that’s the biggest argument against HS2: for the sort of money being committed, one would expect something a bit more advanced than some increasingly standard infrastructure. The Chinese high speed rail network, for instance, is already 29,000 km in length and expected to reach 38,000 km by 2025.

Assuming no delays to the current schedule, the first phase of HS2 will be finished by 2026 – at which point it will be possible to travel from London to Birmingham half-an-hour faster than is presently the case. Wow! If we’d known the 21st century would so exciting! HG Wells didn’t see that one coming, did he?

The UK is making a habit of spending huge amounts of money on underwhelming technology. As well as HS2, there’s ‘HPC’ – Hinkley Point C, a new nuclear power station. We’ve committed tens of billions of pounds to the purchase of overpriced electricity from an already out-of-date French reactor design, with a track record of delays and cost overruns. And we’ll still be paying for it in 2060!

The third of the horrible H’s is Heathrow expansion. No one knows how much this one will end up costing as they’re still working out the infrastructural and environmental implications of expanding a hub airport that was built in the wrong place to begin with. Even if the wider project (including supporting infrastructure) requires no public subsidy – we’re talking about vast sums of private investment that could be more productively (and sustainably) put to use elsewhere. But rather than properly explore options fit for the 21st century, the government decision was to double-down on the biggest planning mistake of the post-war era.

Suggested reading

Don't scorn Boris's ambition

By Mary Dejevsky

I’m not necessarily against grands projets. Sometimes a country has to gather up all its might and do something that only a great and united nation can achieve. But when we do, it’s got to produce something special – a confident leap into a better future, a wonder of the modern world.

Whether the hyperloop ventures in the Emirates and elsewhere succeed remains to be seen. But on the criterion I set out above – that of wondrousness – we can be sure that HS2, Hinkley Point C and Heathrow expansion will not – despite the colossal combined cost.

As a nation we are paying moonshot prices for mundane results.

Suggested reading

Should the rich be allowed to destroy their own wealth?

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.

Suggested reading

Why low interest rates poison the economy

By Peter Franklin

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.

Suggested reading

The irrelevant debate over the top rate of tax

By Peter Franklin

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.

Now two more English clubs have made the other big European club final, one even winning on penalties. And we still have Liverpool and Manchester City’s nerve-jangling fight to the wire this weekend for the Premier League title, followed by the exciting young lions of England contesting the inaugural Nations League finals next month.

English football at both national and club level is in strong shape after an extraordinary season – one of the most thrilling that I can recall in half a century of following the sport.

But one of my favourite moments was rather more mundane: when Neil Warnock, manager of struggling Cardiff City, delivered a rant against the Government’s inept handling of Brexit. “I can’t wait to get out of it,” he said, referring to the European Union. “I think we’ll be far better out of the bloody thing. In every aspect. Football-wise as well, absolutely. To hell with the rest of the world.”

Suggested reading

The beautiful game has become the hyper-capitalists' game

By Chris Deerin

This was a surreal pleasure. A perfect metaphor. Here was this Yorkshireman of pensionable age, struggling with failure to compete, lashing out against globalisation – while standing in front of his club’s ‘Visit Malaysia’ banner.

Vincent Tan, their wealthy foreign owner, even changed the colour of their shirts to attract more Asian fans. Their club chairman was born in Cyprus. The players come from Denmark, Iceland, Ireland and Spain in Europe, along with others from Africa, Asia and north America.

Even though relegated, this club shows how top-flight football has thrived as teams have evolved into international coalitions. The sport is now a commercial powerhouse with billions of worldwide fans. The Bluebirds may not be good enough for premiership survival. But their standard of play is far higher today than many more successful clubs in the recent past and their brand has global allure. This is how Cardiff City can pay players two million pounds a year to play in its fine ten-year-old stadium – and even hand fringe players a seven-figure annual wage.

Suggested reading

Why citizens of nowhere will never get the World Cup

By Giles Fraser

Both on and off the field the game bears little comparison to when I started attending matches in the 1970s and 1980s, going to grim grounds to watch the ball lumped around pockmarked pitches and hoping to avoid fights between rival factions when heading to the station afterwards. Football was struggling to make ends meet, rife with violence and disasters such as Hillsborough symbolised its woes.

Then came the Premier League, in 1992, alongside a flood of Rupert Murdoch’s money – and our national game emerged like a butterfly from a cocoon into a lucrative global behemoth and crucial part of British soft power strength. Now the matches are watched by five billion people from around the world and the teams are valuable international brands which contribute an estimated billion pounds in tax alone to the British economy.

But looming Brexit sparked talk again that domestic talent is getting squeezed out by foreign mercenaries, with the Football Association seeing it as another chance to force teams to increase the number of English players.

This is a tired argument, divorced from economic and sporting reality. Yes, there are justified concerns over some owners of clubs, including those buying into a couple of the most prestigious brands such as Chelsea and Manchester City.

There is still too much corruption, the traditional bundles of ten pound notes in brown bags replaced by far bigger sums shifted in shady electronic transfers. And the sport seems increasingly divorced from its roots when players are so rich, tickets so costly and commercial focus on China and the United States. (Although my own club of Everton shows they can still remain part of their local community, despite a foreign-born owner, East African sponsor and Brazilian stars, with scores of initiatives from teams for people with disabilities through to assisting young offenders, older folks with dementia and funding a free school.)

Suggested reading

More than a beautiful game

By Michael Dalton

But on the field, almost everything has been transformed for the better. On the first day of the Premier League, there were just 13 foreigners performing; today, you would be fortunate to find 13 British players at one game. Then came not only the likes of Eric Cantona and Dennis Bergkamp with their delightful skills, but also innovative managers and backroom staff.

So, at Arsenal, a professorial Frenchman arrived and terminated the drinking culture, transformed diet, improved training techniques and freshened up tactics. In his debut season, Arsene Wenger became the first non-British manager to win the league title.

Critics point to the paucity of home-grown players in top-flight English football; a study last month found that more than two-thirds of goals scored in the Premier League were by foreigners, while another has found less than one in eight players now graduate from their team’s academies (and even here, many are young imports).

Greg Dyke, one of the driving forces behind the Premier League who later became FA chairman, has been very vocal on this issue. He has complained about “an awful lot of bog-standard” foreign players, said it was “depressing” Manchester City could win the title with so few Brits in the team, and promoted moves to limit the number of overseas stars now being speeded up with Brexit.

Suggested reading

Is capitalism killing cricket?

By James Bloodworth

But one of those Manchester City players was James Milner, the English warhorse who later joined Liverpool and played a key, disruptive role this week in their incredible defeat of Barcelona. Although not the most skilful individual, he has played the seventh most games of anyone in the Premier League due to his determination and professionalism.

And he has admitted that, while it can be frustrating to compete for a place against some of the world’s most talented stars, it improved his performance. “Playing and training with the quality we have at this club, how can you not be a better player? You’re constantly fighting for your place. You’re under pressure every time you step out on to the pitch,” he said while at Manchester City.

His words, echoed by others, such as the thoughtful former Chelsea star Frank Lampard, underline again how competition drives up standards in any sector and can improve services for consumers. For while there are fewer British players in the Premier League, those that break through must be of far higher standard – and this boost in skill, increased athleticism and improved attitude benefits the national team as well.

Suggested reading

Let's drop the sports mic

By Simon O'Hagan

It is impossible to argue that English football is in decline when you look at the way a striker such as Raheem Sterling at Manchester City grows sharper – or enjoy the emergence of a young fullback such as Trent Alexander-Arnold, whose vision and intelligence played a crucial role in Liverpool’s semi-final fightback. Jadon Sancho, another young England star, simply moved to Germany to get first team football when frozen out at Manchester City.

Typically, Theresa May misread the significance of this match when answering questions in parliament this week, insisting the lesson of Liverpool’s victory was that even when “your European opposition have got you beat; the clock is ticking down; it’s time to concede defeat — actually we can still secure success if everyone comes together”.

She missed the key point that this miraculous success was forged by a German manager with goals from Dutch and Belgian players – and that it means they stay in Europe, of course, rather than leave.

Despite the dwindling number of domestic players in the Premier League, there were still six who took part in that Liverpool game, and another four turned out for Spurs the following night, while the north London club’s star striker – Harry Kane, the England captain – was injured.

This underlines why, for all the fears, the national team has actually performed better since inception of the Premier League. In the years since England’s 1966 glory, through to the year of the league’s launch, England played 32 games in international finals and won 12, drew 9 and lost 11. Since then, they have played 39 and won 19, drawn 11 and lost 10.

Suggested reading

Can there ever be racial harmony in France?

By John Lichfield

The England manager, Gareth Southgate, has also bemoaned the fact that the pool of players he can pick from is shrinking, with scarcely 50 Englishmen on the field some weekends. Yet not only are these players being pushed hard to win those places, most nations can only dream of having so many people performing weekly in the world’s most challenging football environment.

Leicester’s title triumph three years ago – driven by a Thai owner, Italian manager and English striker – highlighted again the depth of competition in this country and how globalisation has strengthened the game at all levels, despite fears of too much concentration at the top. Indeed, the stumbling giant of Manchester United shows that money cannot always buy success.

Football remains an important source of civic and national pride, inserting our disparate cities and tarnished nation into the international conversation while also offering an increasingly rare occasion when the country comes together in shared experience.

Clearly there are costs to progress. Yet ultimately we should give thanks to the power of globalisation in transforming our national game, which has been revived by the free movement of labour and capital – and bear in mind the wider lessons for other parts of the economy as we cheer on these teams.

Suggested reading

Will Brexit bother the Six Nations?

By Robin Aitken

A new book by Guy Shrubsole Who Owns England? sheds some light on this longstanding question. There is a familiar assumption that floats around in the cultural ether, that the C of E is a massive landowner. But it turns out not to be totally true. Roughly, the Church of England owns 0.5% of England. And given that, through the parish system, the church has a presence in every community in this country, this doesn’t sound a lot to me. Especially when compared to the aristocracy, which owns a whopping 30% of it, for instance.

What fascinated me about Shrubsole’s findings was not how much land the church owns, but how much land it has lost – and relatively recently. According to his figures, the church owned some two million acres of glebe land (an area of land within an ecclesiastical parish used to support a parish priest) in 1873. By 1976, this figure had plummeted to 111,628 acres. And Shrubsole does his best to make this sound suspicious. “The mystery of who stole the church’s land is a whodunnit worthy of a Brother Cadfael novel,” he writes.

Suggested reading

Are capitalism and Christianity really compatible?

By Giles Fraser

It’s an interesting approach. For if there is a question of theft here, it is how the church came by its land in the first place. Glebe was given to the Church of England by Henry VIII as a sort of baptism present at the Reformation. It became the principal endowment of the church. This was mostly land, perhaps four million acres, that was stolen – and I don’t think that is too strong a word – from the Roman Catholic church, along with the dissolution of the monasteries in the 16th century. Forget Henry’s headline sexual peccadilloes, this theft of land is the really dirty stuff – the original sin of the Church of England.

And this theft shaped our society in many and unexpected ways. For as well as giving millions of acres to the church, a great deal of stolen land was sold off cheap by the crown to aristocrats as a bribe for their support. Little wonder there was no enthusiasm amongst the establishment for the return of the Roman church under, say, Bonnie Prince Charlie: the return of the Roman church would have meant a return of stolen land.

After much digging and a certain amount of guess work, Shrubsole calculates that about 70,000 acres of glebe land are now left in the church’s ownership. So where did the rest of it go? Well, according to Savills, the estate agents, “glebe land is usually situated within a settlement, with a high chance of it being zoned for development”. And this “can make the land very valuable”. Surely there’s our answer.

Suggested reading

Protestant practice can save capitalism

By Adrian Pabst

Consider St Paul’s cathedral. Just outside there is large statue of Queen Anne, given pride of place in memory of her programme of adding to the church’s glebe land – called Queen Anne’s Bounty. It was around her statue that the Occupy protesters set up their tents in October 2011, barricaded from what was their original target of protest, the London Stock Exchange based in the nearby Paternoster Square

Paternoster Square was private land, and so could be fenced off from protestors. But what many Occupiers didn’t know was that Paternoster Square had been sold to property developers by the church in 1986 on a 250-year lease, the freehold being retained by the Church Commissioners. It says something about the cloud of mystery that hangs over church property deals that even I didn’t know that the Church of England held the freehold to this land – and I was chair of the Cathedral’s finance committee.

The role of the Church Commissioners is to support the clergy, their stipends and pensions. And balancing God and Mammon is an unenviable task. So what happened to the land? Most probably the church diversified its investment. It moved out of land and into other assets.

In purely financial terms, the Church Commissioners have certainly managed their assets well in recent years. The Commissioners have an £8.3 billion portfolio. And in a poorer parish like mine, I probably wouldn’t get paid without it. As a charity, the Church Commissioners are limited by their charitable objectives, and thus are required by law to obtain best value for their assets.

Suggested reading

More social housing is not the answer – it's time to take on the home owners

By Polly Mackenzie

It is true that the Church of England has not covered itself in glory in the way it has balanced this objective with the management of its land for the greater good of society as a whole. An example of this that still makes most south London clergy froth at the mouth in indignation is the Octavia Hill estates story.

Originally set up out of a sense of Christian duty to provide social housing for the inner city poor, the commissioners decided to sell off the Octavia Hill estates to private landlords, with the inevitable rise in rents and abandonment of their original purpose. That it was the Church Commissioners who trashed an important part of the Christian story in south London is not something easily forgotten or forgiven. Local MP’s Kate Hoey and Simon Hughes called the sale “the end of affordable housing in Waterloo”. And they were right.

Can the church do something to restore its damaged reputation? Last month, it established a commission to address its response to the housing crisis, promising “surplus church land for affordable housing”. And there are already developments underway. At present the commissioners are seeking planning permission for 9,200 new dwellings, 2,500 of them so-called “affordable”.

The Chair of the commission, Bishop Graham Tomlin argues that developers talk too much in terms of building units and not in terms of communities. “As a church we know a bit about how communities work,” he told me. “So the key question is how we build not just how much we build.” That’s true. Which is what made the Octavia Hill decision such a betrayal.

Suggested reading

How to solve the housing crisis

By Peter Franklin

But it is not just through development that church land can serve the public good. Right by the busy Elephant and Castle roundabout, there is an acre or so of land called St Mary’s Churchyard where the church used to be. Technically it is owned by my parish but maintained by the council. Ringed with gravestones, it can’t ever be sold off or developed.

So it remains as open public space for public benefit; a little patch of green amid a forest of glass and concrete, the dead standing sentinel against the encroachments of high-rise developments that now ring this part of South London. In the age of the Church Commissioners and their set rules on asset management, this is probably the nearest the church will ever get to Winstanley’s famous declaration of the earth as a common treasury for all.

For those who already have it in for the church, reference to its financial arrangements are always going to offer a rich seam of critical material. God is an absentee landlord. The clergy are maintaining their material standing at the expense of the poor – it’s a familiar and longstanding trope.

My own assessment – and yes, my own bias as a clergyman duly acknowledged – is that this picture is not as true as the church’s critics maintain, and not as untrue as the church’s defenders would wish it to be.

Another pair of terms that can get confused is ‘fiscal’ and ‘monetary’. Fiscal policy is all about how a government raises and spends money; monetary policy is about the management of the currency – and especially how much of it there is in circulation, which is primarily controlled through interest rates and which has a big influence on inflation.

Being about spending and taxation – i.e. what the government giveth and what it taketh away – fiscal policy tends to be more political than monetary policy. The latter typically goes unnoticed, unless something goes badly wrong. In fact, the whole subject is so esoteric that situations that we ought to be concerned about – such as the impact of persistently low interest rates – fail to excite much debate. Indeed, it suits the politicians to depoliticise the whole issue, handing over key decisions to an ‘independent’ central bank as if some of the most fundamental features of the economic system had nothing to do with them or, by extension, us – the voters.

Further reading

Do you know where money really comes from?

By Peter Franklin

However, monetary policy is becoming re-politicised. In fact, it’s become the subject (and sometimes the cause) of some of the most radical developments in politics of our time. The most obvious example is the ongoing consequences of the European single currency, which was supposed to be the ultimate in turning over political decisions to the technocrats, but which has unleashed forces that are slowly tearing the EU apart while at the same time driving efforts towards further integration.

Then there’s the debate stirred up by the use of monetary instruments like quantitative easing (QE) – when central banks create money and use it to buy back government bonds and other assets from the market, thus boosting the money supply and reducing the cost of borrowing. As well as being controversial in itself, QE is drawing attention to things that governments would prefer the public not to notice – such as the fact that private banks are allowed to literally create money out of thin air before lending it to us.

Once people start focusing on the weirdness of monetary policy, they start having weird ideas of their own. For instance, there’s the proposed alternative/supplement to QE known as ‘helicopter money‘ i.e. money that is created by the central bank and then dropped directly into consumers’ bank accounts. Then there’s Modern Monetary Theory, which turns conventional economic policy on its head and is gaining influential converts.

Another radical departure in monetary policy is proposed by Dirk Schoenmaker in an article for VoxEU. He argues that Eurozone monetary policy should be “tilted” in favour of investment in low carbon technology – by lowering the cost of capital for such investments relative to investments in polluting technologies.

Further reading

It's time to overhaul economic policy

By Peter Franklin

But are central banks supposed to get involved in such things? Surely if the state wishes to channel investment towards certain sectors it should do so by non-monetary means, like tax breaks and subsidies. And if a central bank were to pick favourites, how would that even work? Doesn’t a change in base rates apply to the economy without differentiation?

To answer the last question first, Shoenmaker explains that as well as setting interest rates, the institutions of the Eurosystem (i.e. the European Central Bank and the central banks of the Eurozone member states) have other means of influence:

“The Eurosystem manages about €2.6 trillion of assets in its Asset Purchase Programme, which includes corporate and bank bonds in addition to government bonds. In its monetary policy operations, the Eurosystem provides funds to banks in exchange for collateral, which currently amounts to €1.6 trillion. A haircut is applied to the value of collateral, reflecting the credit risk.”

In finance, a ‘haircut’ is the discount that creditors apply to the value of an asset as a item of collateral compared to its value on the market as an investment item. The more extreme the haircut, the greater the reduction in general demand for the asset:

“Applying a higher haircut to high-carbon assets also makes them less attractive, reducing their liquidity. Early estimates indicate that this haircut could result in a higher cost of capital for high-carbon companies relative to low-carbon companies of four basis points.”

A basis point is a hundredth of one per cent, so four basis points amounts to a 0.04% difference in interest rates. That might not seem like very much, but when it’s applied to the vast sums of investment that will be needed just to stop Europe’s energy infrastructure from crumbling, it adds up. Furthermore, it sends yet another signal to the money markets that investing in fossil fuels is risky – and that the climate change commitments that governments enter into come with teeth.

It would also demonstrate that central banks, though not directly responsible for climate policy, realise that anything that destabilises the global climate ultimately destabilises everything – including the financial system for which they are responsible.

Schoenmaker makes a persuasive case, then. And yet I wonder if EU member states might not see any extension of monetary policy as economic integration by the backdoor. While monetary policy has been federalised by the single currency, fiscal policy remains, for the most part, in national hands (though subject to the Stability and Growth Pact). If, however, we start using monetary policy to do things previously the exclusive province of fiscal policy, then within the EU that would represent a further erosion of national sovereignty – and that could be subject to a further populist backlash.

Ironically, it may be non-members of the Eurozone (and indeed the EU) that find it easier to use monetary policy in new ways.

Further reading

Ten precedents for a compromise Brexit

By Peter Franklin

Unsurprisingly, Uber’s success has attracted imitators – but imitators of what, exactly?

Suggested reading

Platform cooperativism – an alternative to technopoly

By Peter Franklin

I’m not just talking about ride hailing services here – but a variety of markets in which one set of people (typically consumers) need to be coordinated with another set of people (typically providers). These are called ‘two-sided markets’ – and if there’s some kind of enterprise sat in the middle that actively coordinates interaction between members of the two groups then that is called a ‘multi-sided platform’. An example of platform business would be a credit card company that enables shoppers to buy things from vendors and pay for them at a later date.

Being all about coordination and communication, platform businesses have proliferated and thrived in the age of the internet and the smartphone. A lot of the tech giants, like Amazon and Google, fall firmly into this category.

Those two are much bigger than Uber, of course. However, what makes Uber special (and the subject of such intense scrutiny) is that it is the most prominent example of the most controversial type of platform business – i.e. those that coordinate the supply of labour.

In a thought-provoking piece for The Atlantic, Alexis C Madrigal, writes about the influence of Uber and its emulators:

“As a group, all of these companies have brought hundreds of thousands of people into new work arrangements that are more than a gig but less than a job. They’ve rearranged the way people get basic tasks done, and they’ve wired those in local industries—handymen, house cleaners, dog walkers, dry cleaners—into the tech- and capital-rich global economy…”

This hands a great deal of market power to the digital middlemen, raising concerns over actual and potential abuses.

Suggested reading

The monopolists’ manifesto

By Peter Franklin

But what about the benefits to the consumer? What about the great leap forward in convenience? All economic revolutions have their rough side, but when we’re talking about humanity’s progress from rural poverty to the fully automated smart cities of the future, what’s a little turbulence along the way? Get the technology up-and-running first and we’ll sort out workers’ rights later, right?

But looking at a sample of 105 Uberesque start-ups, Madrigal wonders where the great leap forward actually is:

“…because the ideas themselves are not rocket science, the competition has been fierce. Just in this sample, there are eight Ubers for doctors, six booze-delivery companies, five laundry services, and four each of massage, dog-walking, and car-washing start-ups.”

Using the dog walking companies as an example he suggests that the “consumer impact is small”:

“Instead of taking a number off a bulletin board in a coffee shop and calling Eric to walk Rufus, you hit a few buttons on your phone and Eric comes over.”

At least Google and Facebook got their start by offering the best version of a truly revolutionary product – respectively, online search and social media. The ability to hail a cab or hire a dog walker is not so revolutionary; it is something people could do almost as conveniently fifty years ago.

However, that doesn’t mean that the Uber-wannabes aren’t absorbing an awful lot of investment. Madrigal says the start-ups on his list have attracted “$7.4 billion in venture-capital” and asks whether this is “really the best and highest use of the Silicon Valley innovation system?”

A good question, but the horrible truth is that, for want of better alternatives, it might just be.

Yes, it would be great to put one’s venture capital into the next revolutionary innovation – something as transformational as, say, the smartphone. But where is it?

While the world waits for the next big thing, money gravitates to the next small thing instead – and in the era of digitally networked capitalism, a modest improvement in consumer convenience and a narrow edge over one’s competitors is sufficient to establish a dominant, and possibly lucrative, market position.

This strikes me as an argument for the kind of public investment that got the internet off the ground in the first place. Though the big tech companies are sitting on vast piles of cash, they’re not going to invest it in disrupting the status quo – they are the status quo. Meanwhile, smaller, independent tech investors frequently lack the heft, expertise or patience to break new ground.

However, if government or philanthropic investment can get the ball rolling on new technology, then the job of finding commercial applications would give the private sector something more useful to do with its money.

Suggested reading

Britain needs less speculation, not a smaller financial sector

By Peter Franklin

It is not the role of the state to replace private investment; but, as I’ve argued before, government does have a legitimate interest in channelling its flow. Sometimes this is by directing it away from places where it would do harm – for instance by using the tax system to take the profit out of property speculation; but in the case of innovation it’s all about opening up new and better possibilities.

In capitalism’s golden age, this is what government was all about – and it’s what we desperately need to get back to.

Suggested reading

Decarbonising the economy: now for the hard bit

By Peter Franklin

Given the ten-year time frame, it’s absurdly and obviously over-ambitious. Or is that just conventional wisdom speaking? Looking back, there’s a continuous record of official forecasters underestimating the progress that can be made on green technologies like wind and solar power.

There’s also a history of political resistance to any shift from fossil fuels – on the supposition that the alternative technologies aren’t ready yet. That’s a spurious argument, because new technology tends to get better and cheaper in the process of deploying it. As with so much in life, learning comes through doing. The fact that we’ve seen such dramatic cost improvements across a number of fronts – from offshore wind to LED lighting – shows that governments were right to kickstart markets through subsidies and other interventions.

Nevertheless, compared to what’s been achieved so far, the GND represents a whole new level of difficulty, requiring a much faster rate of progress across a much wider spectrum of technologies.

But for the sake of argument, let’s assume that the GND makes all the breakthroughs it requires as it goes along. With the right technology in hand, how much would it cost?

To get an idea, let’s turn to Michael Liebreich of BloombergNEF, who knows a thing or two about infrastructure investments that actually happen.

Totting up the decarbonisation aspects of the GND, Liebreich tentatively arrives at an annual capital investment figure of “$980 billion per year”:

“This is, of course, very much a back-of-envelope figure, as the text is heroically (and presumably deliberately) vague, but it confirms that the hard capital spending part of the GND would indeed be somewhere around the trillion-dollar per year mark.”

Is this remotely feasible? Liebreich deliberately leaves aside the question of how the US government might raise such a sum, or how it might pay it back. Instead, he asks a couple of really basic, but all important, questions.

Suggested reading

What will survive global warming?

By Peter Franklin

Firstly, is there enough wealth lying around from which the capital required for the GND could, in principle, be raised? The answer to that one is yes:

“According to the Federal Reserve, the net wealth of U.S. households reached $109 trillion at the end of 2018, up from $60 trillion at the end of 2009. Even assuming that all of the GND capital spend is financed domestically, diverting $10 trillion over ten years into the GND’s clean energy, infrastructure and transport plans would absorb less than 10% of the nation’s savings.”

The second question is that, assuming it were raised, could the GND capital be spent? After all, the productive capacity of an economy, while not absolutely fixed, is finite – you cannot pay for more work to be done than there are workers and machines to do it. Furthermore, the rate at which capacity can be expanded is also limited:

“According to the Congressional Budget Office, at the end of 2018 U.S. economic output was 0.5% above its long-run potential. The U.S. has only ever run over 2% above its long-run economic potential for short periods, always followed by inflation, recession, or both.”

Liebreich calculates that “$1 trillion of GND spending would represent 4.9% of [US] economic activity” – thus, mathematically, the GND would require a diversion of economic activity on a “fairly grand scale”. Presumably, the units of measurement here would be hundreds of billions of dollars and millions of workers.

It is therefore entirely apt to describe the GND as a “national mobilisation”: it resembles a war effort.

Nevertheless, the American public appear to be up for it – and not just the youthful urbanites who vote for AOC and other radical Democrats:

“In one poll at the end of 2018, the Yale Program on Climate Change Communication and George Mason University found 81% of registered voters, including 64% of registered Republicans, supported shifting the U.S. to 100% renewable energy within 10 years.”

A cynic would say that those polled are simply expressing a view on an ideal world and that, unlike Michael Liebreich, they haven’t sat down and worked out the practicalities of making the dream come true.

But maybe the public are being more realistic than they’re given credit for. They can see for themselves how America’s trillions have been spent over the last twenty years – whether that’s on disastrous foreign wars, inflating the housing market, bailing-out the banks, pumping enormous sums into the world’s most expensive healthcare system, paying the price of unresolved social pathologies, supplying corporate welfare to the wealthiest corporations on the planet, and providing tax relief to billionaires. They look at all that, and so much more, and wonder if the money couldn’t be put to better use.

Far from perceiving the GND as a “socialist land grab”, to ordinary Americans it looks like an opportunity to take back control.

Suggested reading

The great British cock-up: ten times the state got it catastrophically wrong

By Peter Franklin

But that leaves one teeny-tiny little problem. Who exactly would the GND put in control? Who would be directing the flow of such vast sums of wealth on so accelerated a schedule? Who would have to work out the details of how to raise the capital and recoup the investment?

Would it be much the same ruling establishment that presided over the profligacy, waste and disaster of the last twenty years?

Or can we expect the likes of AOC and Bernie Sanders to make all the difference?

But all of that is as nothing compared to Amazon’s latest achievement, which is bringing unity to America’s fractured political landscape. Leftwingers like Representative-elect Alexandria Ocasio-Cortez and Rightwingers like Tucker Carlson of Fox News now speak as one… against Amazon.

Indeed, an extraordinary range of American publications from the socialist Jacobin magazine to the centrist Atlantic through to the conservative National Review have published pieces lambasting the company. The focus of this widespread rage is something that might seem relatively innocuous – a decision over where to site the company’s second headquarters (the first is in Seattle). Compared to all the other controversies that Amazon is embroiled in, the acquisition of some extra office space might seem an odd thing to get so exercised about.

Suggested reading

Cheap consumer goods come with a high human price tag

By James Bloodworth

However, there was an awful lot at stake: 50,000 new jobs and a $5 billion investment in new construction: a huge prize for a big city; the promise of complete transformation for a smaller one.

Which is why a grand total of 238 cities (including some in Canada and Mexico) entered the competition to be chosen. This was narrowed down to a shortlist of 20 cities in January, with the final result announced earlier this month (of which, more later). The whole process was distinctly reminiscent of the competition between cities to host the Olympic Games.

Unfortunately, for Amazon, its quest to find a second home has become a symbol of corporate welfare. That’s because the company wasn’t just looking for the best possible location, it was also angling for incentives.

It is estimated that the various levels of American local government (including state governments) spend between $45 and $90 billion every year enticing businesses to invest in their states and communities (or to not move existing investments elsewhere). The sweeteners take many forms from tax breaks to targeted infrastructure investments (though what counts as a special favour and what is something that the state or city would have done anyway is not always clear). The justification is that the locality will receive much more in return once the corporate welfare recipient moves in and starts creating jobs, tax revenues and reasons for other businesses to move in. From a nationwide perspective this amounts to a system of subsidies for businesses big enough to demand them, but from the narrow perspective of the locality, it can look like a good deal.

Therefore, Amazon wasn’t doing anything out of the ordinary… for corporate America. But if they thought that the spectacle of a trillion dollar company touring the country soliciting favours from investment-hungry cities would look good, they were mistaken.

Suggested reading

The traitors and thieves of Silicon Valley

By Jonathan Tepper

The secrecy surrounding the bidding process didn’t help. One could argue that this is just how business is done – with Amazon expecting no more confidentiality from its prospective public sector partners than it would from the private sector. However, government, whether national or local, is not just another client/supplier, it is a democratic institution. While it isn’t necessary to give a running commentary on every twist and turn in a negotiation, the people of a community can’t be frozen out altogether – not when the deal is as consequential as that on offer from Amazon. Citizens need to be treated with at least as much respect as shareholders – in fact, rather more, because they not only ‘own’ but also legimitise the government side of the deal.

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All of these concerns and others were bubbling away during the 14-month competition, but it was the final result that blew the lid on public anger.

It wasn’t that most of the cities making the bid were doomed to be disappointed. After all, with one new HQ there could only be one winner – something the 238 bidding cities will have been aware of going into the process. As it turned out, there were two winners, because Amazon decided to split its second HQ between two locations. But rather than lessening the disappointment the joint award accentuated it. That’s because neither winner was a city that really needed the break; both winners were located along the BosWash corridor – the mighty connurbation that runs from Boston to Washington. Hopes that Amazon might establish an HQ somewhere in heartland America – helping to bridge the divide between the coastal cities and flyover country were dashed.[2. There will, however, be a $230 million “Operations Centre of Excellence” in Nashville, Tennessee]

Suggested reading

What does America want?

By Henry Olsen

One of the winners was New York – always a strong contender given its global profile. But the other winner was, if anything, of greater geographical significance. Arlington County, Virginia cannot be described as heartland America. It’s not even heartland Virginia – but rather in the western suburbs of Washington. It is therefore well within the infamous ‘Beltway‘ – seen by much of America as the home of an out-of-touch political elite (though it’s also home to a great deal of poverty). The specific location is a business district of superblocks called Crystal City. Despite the name, it is not the most sparkling of places – but it is right next door to Reagan National airport. It’s also got metro stations, is just across the bridge from the Capitol and handy for the Pentagon (where Amazon has business). Jeff Bezos also happens to own the Washington Post.

So despite a high profile competition in which cities across and beyond the nation were considered, the winners were America’s biggest city and its capital city. A big-ticket investment decision that might have helped disperse the concentration of economic power in America, has confirmed it instead.

In the light of the outcome, Amazon is open to accusations of having staged the competition as a publicity stunt. Though to be fair, if it had opted for New York and Washington without the competition, it would have been accused of not giving the rest of America a chance.

Other critics see the competition as a clever way of obtaining commercially useful information about the expansion plans of candidate cities – handy when you’re in the business of building a nationwide distribution network (not to mention a chain of automated retail outlets). That said, obtaining such information is what major developers are pretty good at anyway.

Suggested reading

Who will take on the undeserving rich?

By Deborah Hargreaves

The fiercest aspect of the backlash centres on the corporate welfare aspect of the final decision. Despite picking the most ‘Amazon-ready’ locations, the company has nevertheless secured a reported $2.2 billion of additional inducements. Even the most reliable defenders of corporate America have had enough. In an editorial entitled ‘Amazon’s Golden Fleecing’, the Wall Street Journal had this to say:

“We rarely agree with socialist Congresswoman-elect Alexandria Ocasio-Cortez, but she’s right to call billions of dollars in taxpayer subsidies for Amazon “extremely concerning.” These handouts to one of the richest companies in the history of the world, with an essentially zero cost of capital, is crony capitalism at its worst.”

Fox News host, Tucker Carlson also weighed in: “the richest man in the world just got $2 billion in taxpayer subsidies. How does that work?”

And yet, some of the rival locations were offering a lot more than that. Amazon literally turned down billions of dollars so that it could locate in New York and Washington. What clearer proof could there be of the pulling power of a fortunate few locations over everywhere else.

The fact that this involves Amazon only makes it worse. This is a company with a physical footprint of facilities and employees across America. With its expertise in cloud computing services, logistics and distribution, there can be few organisations better positioned to overcome the tyranny of distance. If anyone could have made a non-obvious location work, it was Amazon.

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The ‘Amazon moat‘ is not a water feature planned for either of its new headquarters, but a reference to the company’s well-defended position in the marketplace. Its operational infrastructure from websites to warehouses is so extensive and interconnected as to make it all-but-impossible for a serious competitor to emerge. Without the Amazon’s economics of scale (and accumulated expertise), it’s very hard for rivals to compete on price across such a range of goods and services – and if they can’t do that they can’t grow big enough or last long enough to match Amazon’s heft.

Suggested reading

What does the 'charging elephant' - also known as Amazon - want? Only everything (and beware of getting in its way)

By Peter Franklin

‘Superstar cities’ like New York and Washington also have their metaphorical moats: the connections, attractions, size and diversity that smaller and/or poorer places cannot compete with. Unlike a company, a city is limited in the scope of its geographical expansion. A city cannot grow ever onwards across the world. What it can do, however, is bring the world to the city. Companies are nothing without people and are, therefore, drawn inexorably to the places that have the people it needs, which in turn attracts more people and, of course, their money.

So is that it, then? Are nations like America doomed to a circular process of growing geographical inequality? A favoured few mega-cities monopolising a favoured few mega-corporations?

A country can’t afford to give up on its smaller cities (or to ignore the interests of its smaller businesses). However, changing the dynamics of economic concentration will require concerted action on the part of central and local government. Here are five things they should be getting on with now:

A crackdown on corporate welfare. It should be against the law to offer inducements to one business that aren’t available to all businesses – especially when it comes to their treatment in the tax system.

A transparent city planning system. All information about governmental land-use and infrastructure investment decisions should be open source – with no privileged access for powerful interests. Maximising the involvement of local citizens in key planning decisions requires radical openness anyway.

Giving communities more control over their land. One of the reasons why Crystal City was so attractive to Amazon is that much of the relevant land was owned by one developer – greatly simplifying matters for a major investment. Instead of offering tax breaks and the like, local government would be much better engaged in entrepreneurially obtaining and preparing land for development.

Rethinking the way the state allocates capital spending – which should be counter-geographical as well as counter-cyclical. Investing to maximise returns on the basis of conventional assumptions means that the same places will get most of the public investment as well as the private investment. It would also help not to include rent in GDP calculations, which counts the inflation of land values in overheated property markets as ‘growth’.

Suggested reading

The cost of property may slowly kill Silicon Valley - but a Land Value Tax might give it new life

By Peter Franklin

Introducing a land value tax. The concentration of development in a few favoured locations sends rental values soaring. Not only should this bonanza for landlords not be counted as growth, it should also be properly taxed. In the long-term, this would help shift investment out of economically unproductive, socially useless speculation. In the shorter-term, it would raise revenues that could be invested locally in social housing and community land trusts – and nationally in boosting the potential of smaller cities.

Finally a word of warning: dominant cities don’t stay that way forever – and neither do dominant companies. The tendency towards economic concentration is driven by factors that shift over time. Taking active steps to spread the productive potential of a nation isn’t just a matter of maintaining social cohesion, still less is it an act of ‘charity’. Rather, it is the policy of keeping options open in a world where change is inevitable.

Or, to put it more succinctly, don’t put your eggs all in one basket – Amazon baskets included.

The crisis spurred a broader rebellion against capitalism itself, and in the UK, prompted concern that our economy is afflicted by ‘financialisation’ – the process of the financial sector becoming increasingly influential, politically and economically.

Critics of finance should, of course, recognise its benefits. The financial sector provides myriad services without which a modern economy couldn’t function. It allows us to borrow and spread the cost of big purchases, such as housing; provides a return on our savings (in normal times, at least); and channels investment into businesses. And innovations in finance have the power to help us achieve societal goals, and to change the way big business operates for the better.

But despite these positives, the widely held view that something has gone wrong is well-founded. There are two key issues: finance as a source of systemic risk; and finance as a source of negative effects on the ‘real’ economy (the non-financial part) – both resulting from the sector’s increasing size and significance.

Since the financial crisis, much has been done to tackle the systemic risk: regulators in the UK and internationally have worked to reduce the risk that the sector poses to the economy as a whole. Banks are now required to hold more collateral, and in the UK, so-called ‘casino’ banking – the most speculative, short-term trading activity – is kept separate from the retail banking services used by households and businesses. The government has also introduced bank-specific taxes “to ensure that banks and building societies make a fair contribution, reflecting the risks they pose to the financial system and the wider UK economy”.

But policy has been much less responsive when it comes to addressing the second category: the ongoing negative effects that finance has on the economy, outside of times of crisis. The sector’s size, and the demand it creates for sterling, contributed to a 10-year period between the mid-1990s and the financial crisis during which the pound was very strong. This made life more difficult for exporters and increased UK manufacturers’ reliance on imported inputs, which in turn has limited the boost to exports from the pound’s recent falls in value.

Further reading

Ten years on from the crash, the most important banking reform has still not been enacted

By Liam Halligan

The financial sector’s tendency to cluster in one region, or ‘agglomerate’, also means that financial activity and the wealth it generates has become increasingly concentrated in London. Banks extract a substantial fee for ‘intermediation’ (the services it provides to borrowers and savers) which doesn’t look to have fallen even as productivity has improved, suggesting inadequate competition in the sector. And it doesn’t channel sufficient funds into business investment, instead preferring the relative safety (or at least as it appears) of real estate – boosting house prices for ordinary buyers.

The implications of this are profound. Start-ups and innovative businesses perceived as risky investment prospects don’t get the finance they need to grow, while runaway house prices in London and the South East mean a large proportion of the population is now likely to be locked out of home ownership. In fact, the UK has persistently poor investment rates relative to otherwise comparable countries such as Germany, Japan and the US, which is likely to have contributed to our disappointing productivity performance. And of course London has decoupled from the rest of the UK economy, with many regions outside the Capital struggling to find new economic identities as manufacturing has declined.

The proliferation of insecure work, and stagnating wages, is a symptom of these issues: across the country, manufacturing jobs have either been replaced with low-skill, low-pay service sector work, or not replaced at all, creating long-term economic inactivity and dependency on the state. And most unfairly, it means that how well you do in life is increasingly a function of where you are born.

The good news, however, is that it is possible to turn this around – to make our financial sector a driver of success across the whole economy.

To boost long-term investment, we need to ensure the right incentives are in place. First, the high-frequency trading of company shares, which now makes up the majority of equity trading and adds negligible value to the economy, could be made less profitable by taxing it. Second, more ‘intermediary’ institutions, such as asset managers, that trade in shares could be required to act in the interests of the people who ultimately own them. Currently these intermediaries are often rewarded on the basis of the volume of trading activity they undertake, rather than the underlying performance of the companies in which they are investing – regulation could rectify this.

Government can facilitate alternative sources of business investment, for instance by setting up specialist public banks to invest in key sectors and regions. Government can also look to shift the financial sector away from socially useless and destabilising activities – such as speculative, over-investment in property – through macroprudential tools. For example, a house price inflation target for the Bank of England would end expectations of perennial strong price growth, dampening the speculative activity that makes these expectations self-fulfilling.

Further reading

Corporate buyback culture is financial engineering not value creation

By Charlotte Pickles

Alongside these targeted measures, industrial strategy – interventions by the government to change what the UK produces and how – is essential to rebalancing the economy and ensuring that non-financial sectors can thrive. The goal should be to support and diversify the UK’s export sectors and strengthen domestic supply chains. Over the long term, only a profound restructuring of our economy along these lines will enable us to overcome the problems associated with our financial sector.

The challenges financialisation poses to the economy, and to our future prosperity, are serious but not insurmountable. Finance can, and should, be recast as servant, not master, of a thriving economy.

Might these challenges be somehow linked? The answer is yes, but not directly. Indeed, the market-leaders tend to be the most innovative and productive firms in their respective sectors, while overall performance is held back by a long-tail of smaller and/or less advanced firms.

In an important article for VoxEU.org, Jonathan Haskel and Stian Westlake argue that a third phenomenon lies at the root of what’s going on:

“…over the past 20 years there has been a steady rise in the importance of intangible investment relative to tangible investment… by 2013, for every £1 of investment in tangible assets (buildings, machines, vehicles, etc.) the major developed countries spend £1.10 on intangible assets (such as software, R&D, design, branding, training, and business process engineering).”

This matters because intangible assets have special economic properties:

“One is the ability of firms to scale intangibles over their operations more readily than tangibles. Uber can serve more customers with their existing software, but Bob’s Taxis, your local taxi firm, has to buy more cars. Another is spillovers – firms cannot use their rivals’ tangible assets, but can potentially use their rivals’ intangible assets.”

If their business is based on intangibles, it’s therefore easy for big companies to get even bigger – quickly ramping up production to meet demand, and readily developing new capabilities by attracting talented individuals and acquiring the intellectual property of other firms.

In getting bigger, such firms also get better because of synergies between intangible assets:

“…intangibles are often highly valuable when combined with other intangibles. For example, consider how the R&D and design in an iPhone combine with the organisational design of the App Store and Apple’s supply chains, and with Apple’s own brand to create one of the world’s most profitable products.”

OK, that explains why the shift to an intangible economy lends momentum to leading companies, but how does it explain the slowdown of the wider economy?

One theory is that the ‘laggard’ firms just can’t catch-up:

“If more of the capital stock is scalable, and exhibits synergies and spillovers, leading firms can pull away from their competition, scaling up over their intangible assets, assimilating knowledge from rivals, and combining intangibles in a way that laggards cannot.”

The old world of tangible innovation was different. For instance, when coal-powered machinery was superseded by oil-powered and electrical machinery, the factories that first adopted it may have had an initial advantage – but the competition was able to close the gap by slotting the new tech into their existing operations. However, in the new world where innovation is more about the multi-dimensional integration of intensely knowledge-based systems, the gap between the frontier firms and everyone else becomes unbridgeable.

There is, however, an alternative (or additional) theory, which is that the problem lies with not with the laggards, but the leaders. The idea is that many intangible investments, while profitable for the investor, are parasitic on the rest of the economy. Examples that Haskel and Westlake give include tax avoidance schemes, lobbying for special favours and spurious legal action over intellectual property. This is what economists call ‘rent-seeking’ i.e. economic activities that do nothing (or less than nothing) for overall productivity.

Is there anything government can do about the winner-takes-all economy?

In some cases, the answer is no. We have to accept that outdated business models aren’t worth saving. Indeed, when they tie-up talent and capital that would be better deployed elsewhere, we should welcome their dissolution. If the agent of change is a bigger firm that offers better goods and services – yes, even a foreign one – then we should not stand in its way.

Yet, at the same time, we must guard against monopoly. Government must disrupt rent-seeking at every opportunity, especially on the part of the most successful businesses. State bureaucracy is good at getting in the way of private enterprise – but when that enterprise is fundamentally unproductive, government should not hold back.

More positively, government can encourage competition by investing in shared infrastructure – making sure it’s accessible and useful to businesses of all shapes and sizes. Infrastructure includes the intangible infrastructure of knowledge networks, which when under the exclusive control of particular companies can put them in an unassailable position – think Facebook or Amazon. Government, however, collects vast amount of potentially valuable information. Effectively integrated, open access to publicly-gathered data could be a powerful antidote to the monopolistic exploitation of privately-gathered data.

In the winner-takes-all economy, government should allow market-leaders to be the best they can; while preventing them from doing their worst.

For instance, if housing units in global cities like London and New York are purchased not as homes, but as investment opportunities for absentee owners might that not be pushing up prices at the expense of people who just want a place of their own in the communities where they live and work?

In the New York Times, Emily Badger investigates the impact of foreign money on local housing markets:

“…the true extent of the phenomenon is maddeningly hard to measure. So are its broader economic effects. Local governments have barely attempted to track the cash influx. And each of these global cities has become attractive to investors partly because housing in them is scarce, making claims of insufficient supply and excessive demand all the more difficult to untangle.”

Nevertheless, there’s no doubting that the inflow of capital is on a massive scale:

“New data this week from the National Association of Realtors estimates that foreigners, led by the Chinese, invested $153 billion in housing in the United States in the year that ended in March, up a remarkable 49 percent from the previous year. Nonresident foreigners were responsible for half that total.

“That is the largest sum since the organization began tracking foreign investment in 2009, and those purchases amounted to 10 percent of the dollar value of all existing-home sales in the United States last year. Nearly half of that money went into just three states: California, Florida and Texas.”

Badger notes that local grievances are with “foreign money, not foreigners.” Indeed, it is the openness of the cities in question that makes them such attractive destinations for investment.

Of course, in speaking of ‘investment’ one has to qualify the word. When a city seeks to attract investment it isn’t primarily concerned with the financial return to the investor, but rather the associated boost to the growth, productivity and diversity of the local economy. Investment (or, rather, speculation) in property that already exists – and which already has a use – does not achieve any of these benefits. If foreign investors were buying into the city so that they could live and work there, that would be different. But when homes are left empty or rented out to a re-proletarianised ex-middle class, there is clear disbenefit.

This is a self-compounding problem. The further that prices and rents are pushed up, the more attractive a property market becomes to speculators – and in a globalised economy, the pool of potential investors is more of an ocean.

Emily Badger’s article is unusual in that it concludes with what just might be the solution:

“Rhys Kesselman, [a] professor at Simon Fraser University, has proposed an intriguing alternative: a property surtax tilted toward high-end homes that would be deductible against the owner’s income tax. Local residents paying income taxes would effectively owe no surtax. Out-of-town investors, foreign or domestic, who don’t work in the local economy would be hardest hit (with some concessions for resident retirees).

“The elegance of that idea is that it doesn’t require local governments to figure out who is foreign and who is not, or which homes are vacant and which are occupied. And it recognizes that the real problem isn’t foreigners; it’s speculation in the housing market…”

There’s an idea for Brexit Britain: open to the entrepreneurs of the world, but not the carpetbaggers.