Turning our economy French is the worst way to prepare for Brexit. It won't save the Tories either
Three weeks ago, the Conservatives paid a fearsome price for taking the economy for granted. In the Queen’s Speech, ministers tried to make amends by promising a "modern industrial strategy". If they think this will help the economy turn the corner, and boost productivity growth and living standards, dream on.
The Conservatives are embracing a French-style economic model just as we’re leaving the EU while neglecting the economic opportunities from being freed from EU regulations. It is a formula for combining the worst of both worlds and, you might well ask, what is the point of it all?
As important as the Brexit negotiations are, the economy is more important. Even the most favourable Brexit deal won’t make the economy strong. But a strong economy means whatever the eventuality – deal or no deal – Britain can make a success of life outside the EU.
Foreign investment in Brexit Britain is increasing
With the Treasury under Philip Hammond opting out of its role as driver of economic reform, Greg Clark’s department of business, energy and industrial strategy (BEIS) now has the lead role. Unfortunately the lights don’t burn bright in BEIS. His Industrial Strategy green paper, published six months ago, represents business as usual, a case of going through the motions.
Strategy is about making tough choices. A bold industrial policy would have halting and reversing de-industrialisation as its strategic goal, not through unsustainable subsidies but through sustainable competitive advantage. Making things requires energy. For both medium and large industrial consumers, UK electricity prices are far higher than for any other European country. For large consumers, they are double the EU average and for medium users, they are more than 50 per cent higher.
These high energy costs are policy-driven. Leaving the EU makes it possible to reverse them. Cheap energy should be the cornerstone of any industrial strategy worthy of the name. The lower energy costs go, the greater the competitive advantage, the more Britain can export and the greater Britain’s ability to attract inward investment.
Thanks to North Sea oil, Aberdeen is the highest productivity city-region outside London. Fracking in the US has generated annual economic gains of $300-400 billion, reviving the fortunes of rust belt states such as Pennsylvania. Britain is sitting atop its own source of cheap energy. The Bowland shale formation, stretching across the North West to South Yorkshire as far south as Derby, contains around 50 per cent more natural gas than the two largest shale formations in the US combined. Yet shale does not feature in Greg Clark’s industrial strategy.
In the US, fracking has triggered $164 billion of investment in the chemicals industry. For decades, ICI was the largest manufacturer in Britain. Now the sector is in decline, one that could be reversed, as America shows. But it too barely merits a mention, Greg Clark’s industrial strategy effectively writing off the futures of Teesside and Grangemouth.
Instead the government seeks economic salvation in wasteful infrastructure spending. Because France has lots of high speed railway lines, we need to have HS2. British electricity consumers will be paying France for the world’s most expensive power station in a kind of post-Brexit poison pill.
Gorging on infrastructure spending is not a path to prosperity. It’s a way rich countries like to spend their money, or in Britain’s case, the money we don’t have. As Harvard economist Edward Glaeser comments on Japan’s $6.3 trillion infrastructure splurge, the Japanese economy is less, not more dynamic as a result. By contrast, having more well-paid, high productivity jobs and the lowest energy costs in Europe will do wonders for tax revenues and reducing the deficit without endless austerity.
"He’s very French," David Davis said of Michel Barnier, his French counterpart. The philosophical differences between Britain and France are profound and long-lasting. The French elite was appalled by Thatcherite economic liberalisation. As Giscard d’Estaing – the only centrist president before Emmanuel Macron – put it: "We have to choose between a structured system and an amorphous space".
Their answer – and Macron’s – is not economic liberalisation but more Europe. Immediately after becoming president, Macron flew to Berlin to put l’Europe qui protège on the Franco-German agenda. The continuities between Macron and de Gaulle, who first vetoed an EEC-UK free trade agreement in 1959, are extraordinarily durable.
In their history of over three centuries of Franco-British rivalry, Robert and Isabelle Tombs note how French statesmen inflicted what should have been a devastating strategic setback on Britain with the loss of the American colonies. It didn’t turn out that way. Their hope was "the pipe-dream of armchair strategists who confused diplomatic intrigue with commercial conquest". The strength of the British economy enabled Britain to take American independence in its stride. British businessmen knew the market, could supply the world’s cheapest manufactured goods and offered unmatchable credit. American demand for British goods fuelled the Industrial Revolution.
The lesson for the government is clear: Focus on improving the performance of the economy and Brexit will look after itself. If the government does not, it risks ending up with a weak economy, an unfavourable Brexit deal and a divided Conservative party – bringing closer the prospect of handing the keys over to Jeremy Corbyn before or after the next election.
Rupert Darwall is author of Going Through The Motions: The Industrial Strategy Green Paper which is published today by Civitas
