According to the current edition of the Economist, Britain appears to be questioning the wisdom of its devotion to ‘the liberal economic credos of its recent past.’ Those are the credos which include free trade with open access to unregulated markets, minimised public sector, and so on and so forth – the whole baggage of neo-liberal economics to which the Economist itself is committed.
This questioning was prompted by popular responses to the threatened closure and disposal by Tata of its British steel operations. They were said to be losing around £1m a day, at least in part as a result of Chinese dumping cheap steel on UK markets. The outrageous suggestion had been made that the Brits should protect their domestic industry by charging an import duty on Chinese steel so as to at least level the playing field. Thus the classic dichotomy was drawn up between the two childishly simple minded economic ideologies: free trade on the one hand; protectionism on the other. These are the tips of the two ice-bergs of neo-liberalism and totalitarian communism.
If one simplistic ideology is challenged, the only alternative is the other equally naïve perspective. The Austrian – Chicago school of neo-liberals (von Mises, Hayek, Friedman et al) argued that any step in the direction of exercising social responsibility, any amendment to increase equity, rather than seeking to maximise economic growth, would lead inexorably to full on totalitarian communism. No doubt the communists believed the opposite, so, when members of the Soviet Union showed signs of liberalising, the tanks were sent in to eliminate such aspirations. But defeating the 1956 Hungarian uprising and the 1968 Prague Spring, could not prevent the 1989 fall of the Berlin Wall.
That signalled the practical end of the communist ideology, since when there appears to have been no credible alternative to neo-liberal economics. Even moderate governments have swallowed the package in its entirety, none more so than British governments over the past few decades. Naïve enactments driven solely according to the diktats of ideology serve short term political opportunism, while damaging the economy’s long term potential to the disadvantage of the British population.
An illustrative example was the £1.4 billion Thameslink contract which the UK government awarded to the German company, Siemens, rather than to the UK’s last rail producer, Bombardier. The then Transport Secretary, Philip Hammond, justified the decision which threatened to result in the loss of 1400 UK jobs, on the grounds of commitment to the belief in ‘free trade and open markets’. Hammond had noticed that ‘the Germans award contracts for trains to German builders’, and ‘the French routinely award contracts for trains to French train builders’. With some derision, Hammond described the French and German approach, as looking ‘more strategically at the support of the domestic supply chain’. He was proud to proclaim that for the UK government, the free trade ideology took priority over such considerations.
Similar ideology saw Boots the Chemist acquired by a private equity operator, saddled with the debt raised for its acquisition, and registered in the tax avoiding Swiss canton of Zug with its corporate culture radically altered to focus on maximised shareholder value. The British owned car industry was sold off for £10 to the Phoenix consortium of asset strippers who extracted £42m for themselves before closing it down. The British steel industry and many others, without any state support, were sold off to foreign owners or closed down. These are all examples of the practical effect of the outcomes from naïve acceptance of the neo-liberal economic belief system.
A century and a half ago, John Ruskin referred to economics as a ‘most curious delusion’ and likened it to alchemy, astrology and witchcraft, which totally lacked real world applicability. Nevertheless, the UK’s ‘madmen in authority’, as Keynes referred to them, are still applying those naïve beliefs with devastating effect.
An alternative approach has been flagged up by Cambridge researcher Julian Allwood in relation to the British steel industry’s current position [http://www.cam.ac.uk/research/news/uk-steel-can-survive-if-it-transforms-itself-say-researchers]. UK’s strengths in materials innovation could be deployed by recycling to high and specialised grades of steel, rather than create more steel from iron ore, for which the world already has surplus capacity, or recycling to cheap low grades of steel. Exploiting UK’s technological lead in this backward segment of the market would be an opportunity for an entrepreneurial state, but it will require government support over and above the savings from avoided unemployment.
However, such a solution seems to challenge the neo-liberal free trade ideology, while the alternative dogma has already been seen to fail. Could there be a more enlightened pragmatic approach to these real world problems? Is there is some way of applying real world knowledge and experience to decision making, rather than relying on the naïve enactment of simplistic dogma?