Wednesday, 25 January 2017

The Tory long-term economic plan


In the 1980s Margaret Thatcher and the Tories set about fundamentally restructuring the UK economy away from manufacturing and towards the service sector, especially financial services in the City of London. Now, with Tory "hard Brexit" they're intent on driving the financial services sector away from London by erecting a huge trade barrier against the rest of Europe.

In this article I'm going to take a look at this extraordinary Tory lunacy in a bit more detail.


Part 1


The two main reasons that the Tories steered the UK economy away from manufacturing and towards financial services were ideology and over-optimism.

The Tories wanted to destroy the power of the trade unions. The destruction of the heavy industries that the most powerful unions were based on was a core strategy in the Tory ideological war against worker power. Thus industries like coal mining, steel, ship building, rail industries and HGV manufacturing were left to ruin, or even subjected to deliberate ideological attack.

To put this Tory victory over worker power into perspective, the National Union of Miners had some 170,000 members in the early 1980s. Now there is not one single underground coal mine left in the UK and the once mighty NUM has just 100 odd members left.


Aside from wanting to destroy the power of industrial workers by destroying their jobs (and communities) the other Tory reason for this shift towards a financial sector dominated service-based economy was over-optimism. The 1970s was full of new theories like the post-industrial society, and the Tories thought that they could deliberately accelerate the process of becoming a modern post-industrial society by neglecting and undermining the industrial sectors and putting all of their efforts into turning London into a global financial services hub. They actually thought that they were modernising Britain when what they were actually doing was unforgivable economic vandalism. This delusional modernisation mentality was reflected in all of the slick political propaganda the Tories commissioned from trendy advertising agencies like Saachi and Saachi.

If we look at the UK balance of Trade the appalling consequences of this deliberate process of de-industrialisation becomes clear. Over the years the UK has been importing more and more manufactured goods, but this woeful trade imbalance has been partially offset by the trade surplus in services, mainly financial services.

Contrast with Germany

The contrast with the approach taken by Germany is profound. Instead of fighting damaging ideological wars with the trade unions, Germany actually has a law that requires worker representation on the board of company directors. Instead of taking an antagonistic class-warfare based approach to industrial relations the Germans adopted a more co-operative and conciliatory approach.

The difference in the German approach to industrial strategy is also profound.

Instead of gleefully kicking their core industries into the grave and concentrating on financial services, the Germans supported their manufacturing and heavy industries and encouraged modernisation with the aim of becoming a modern high-tech economy. Their success has been undeniable. While British vehicle, machine and machine tool industries have floundered and died off dramatically, the Germans have thrived.


The Germans don't need a vast over-sized financial services sector to offset their balance of trade deficit because they have a huge trade surplus.

Part 2

After having restructured the UK economy to make it fundamentally reliant on financial services the Tories decided to hold, and then lose a referendum on EU membership. After that they then decided to aim for a Tory "hard Brexit" that involves erecting a huge trade barrier between the UK and continental Europe.

London-based financial institutions are deeply worried that the new Tory trade barriers are going to lose them money, and they're drawing up plans to shift significant swathes of their businesses out of London to keep their access to the European Single Market. Cities like Paris, Frankfurt, Dublin, Madrid and Amsterdam are jostling to entice major financial institutions away from London. 


If the post-Brexit exodus of financial services happens, then the UK is going to be in deep economic trouble. The export of financial services will dwindle and stop partially offsetting the woeful trade deficit in goods, meaning the balance of payments is just going to get even worse than it already is.

The idea that this situation can be rectified quickly is absolute fantasy. Four decades of deliberate industrial neglect can't be undone overnight with a bit of optimistic Tory rhetoric.

If Britain wanted to rebalance towards high-tech industries in order to combat the trade deficit in goods, it needed a comprehensive industrial strategy a decade ago, not just some optimism-heavy but investment-light blibber blabber from Theresa May now.

Brexiter bobbins

The best that Brexiters seem to be able to come up with to justify the massive act of economic self-harm that we're about to do is to hurl the extraordinary accusation that "lefties" should hate banks, therefore they're hypocrites unless they support Brexit and the deliberate expulsion of tens of thousands of banking jobs, and £billions in tax revenue and £billions more in exported services.

The thing that makes this stance so extraordinary is the way that the people adopting it are so desperately willing to overlook the complete Tory U-turns on stuff like free trade (they're busy erecting a huge Brexit trade barrier with the continent) and banking (they've coddled the City of London for decades, but now they're intent on locking them out of the EU in order to please the baying hard Brexit mob).

You don't actually have to be a big fan of banking and hyper-financialisation in order to see the economic damage that Tory Brexit is going to do, you just have to be a pragmatist. It's just not a sane economic policy to spend four decades restructuring your economy towards financial services until you're completely reliant upon them, and then suddenly tell them all to "piss off"!

Part 3


Once the Tories have told the financial services sector to "piss off" what comes next?

What is the Tory plan when London loses tens of thousands of highly-paid jobs to the continent; when the Exchequer loses £billions in tax revenue; when the UK's already woeful trade deficit is made even worse by the exodus of financial services providers?

If the evidence of the last six years is anything to go by, then the prescription will be more austerity for the poor and ordinary, more wage repression, more politically partisan cuts to local government, more destruction of public services, and more tax cuts for corporations and the super-rich.


Conclusion

The long-term Tory economic plan that has played out over the last four decades is beyond belief:
"Let's put all of our eggs in one basket ... and then smash the basket up with a sledge hammer"
Despite the obvious economic lunacy of both parts of this "plan" people still insist on rote learning bizarre counter-factual narratives from the right-wing press about how the Tories are the party of economic competence. And the Tories will continue getting away with socially and economically ruinous incompetence as long as people keep rote learning ridiculous right-wing economic fairy stories from the right-wing press.

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