The Chaos Will Continue

Britain’s chaos will continue

“I thought f*ck them and voted leave,” said a close friend of mine intellectually explaining his leave vote. He was expressing his anger at people left behind. No nationalist, he’s an immigrant who has dedicated decades of his life to serving people in poor communities in the UK and around the world. Some people think that if Brexit is either soft or stopped the whole nightmare of the last three years will end. It won’t.

The UK has seen no significant rise in living standards since 2002, yet the economy is almost a third larger. Unless and until Britain addresses this central flaw of globalised economies our chaos will continue. Voting for Brexit maybe like trying to treat a patient with a sugar pill or worse, but at least the patient may feel that they’re forcing the doctor to listen.

Free market capitalism has failed its central bargain of inequality in exchange for all people being better off. So now we know that liberal ideas like cutting taxes for the rich to boost the economy are as bankrupt as the neo-marxism and nationalism that liberals despise. But what to do to catch-up the left behind? Three ideas:

Bring in knowhow. Economist’s usually explain a country’s development through technological progress: People move into cities, allowing ideas to be shared more easily, then they educate their children longer, enabling further technological progress. Brazil’s levels of urbanisation, years of schooling and university graduation rates in 2010 are slightly better than the UK’s in 1960. So, you might expect GDP per capita in 1960 Britain to be similar to Brazil’s in 2010? In fact, 1960 British GDP per capita is almost one and a half times higher. Economist Ricardo Hausman explains the difference due to the difficulty in acquiring “tacit knowledge;” the knowledge acquired by learning by doing which cannot be taught. It is easier to move people with tacit knowledge than to acquire it. So, to successfully regenerate deprived areas it is vital to incentivise highly skilled people to move there and use their tacit knowledge to create new companies and jobs. [1]

Learn from catch-up economies. In traditional liberalism the state’s role in innovation is limited to a regulator and builder of infrastructure because state bureaucrats do not have the knowledge to identify new technologies. Another simplification. It may be appropriate when operating with frontier technologies such as artificial intelligence, but not when trying to catch-up with technologies already used elsewhere. South Korea went from being as poor as Ghana in the 1950s to one of the most advanced economies on the planet through an aggressive state led catch-up based on intense collaboration between the state, universities, and the private sector with a massive research and development spend. This could be used to electrify left-behind areas by focusing on green technologies with a more predictable path of technological development and so more suitable for state intervention. When combined with a fiscal stimulus, we could accelerate the UK’s decarbonisation and so also help avoid climate catastrophe.

Raise taxes. With the failure of “trickle-down economics” capitalism’s basic bargain needs to be re-written to be far more redistributive. This will only exacerbate as the tech revolution provides capitalisms returns to an ever-smaller group. In his recent book “The Future of Capitalism”, Paul Collier advocates a city tax on wealthy metropolitan areas, like New York’s city tax, to regenerate areas left behind. This could be the basis of a settlement between leave and remain voters; an open economy is tolerated in exchange for far greater focus on globalisation’s costs.

All this would amount to a new national endeavour and a financial sacrifice by the rich. But I cannot see how our dysfunctional political system is in in any way up to it. But if it isn’t, voters will continue to deliver nationalist and neo-marxist votes to stick two fingers to the system that ignore them. Our downward spiral will continue. That is why it is so important that The Independent Group adopt a policy platform that offers fundamental and credible reform of our economic model.

Chris Coghlan is a former diplomat. Last general election he stood as an independent in Battersea. Chris holds an MBA from Harvard’s Kennedy School of Government. Prior to joining the Foreign & Commonwealth Office, Chris spent a decade in finance and founded the charity Grow Movement. @_chris_coghlan

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