Ken Clarke was pronouncing on Radio 4 several days ago that in the eighties people were calling for nationalisation to save British industry. He claimed the idea that the UK will collapse unless the government steps in has been heard before and is tired old nonsense. He seemed to think that history and the magic of free markets have proved the interventionists wrong.
So what really happened to the UK economy during the free market reign?
In 1979 as north sea oil and high interest rates inflated the value of sterling, foreign imports became cheaper. UK companies could buy coal from Poland and South Africa more cheaply. UK industries found they could import finished products from countries such as China for less than the cost of producing them here. So this must be good: cheap imports and low inflation courtesy of free markets.
Wrong on two counts: if a nation turns from producing to consuming it eventually runs out of money to buy its imports. It starts to fund its consumption from ever increasing borrowing, leaving it in hoc to its creditors be they domestic banks or foreign sovereign wealth funds.
Second count: the implosion of UK industry was not the result of free markets: it was caused by government policy: the failure to save north sea oil revenue and the hiking of interest rates under the doomed monetarist experiment to control the money supply jacked up sterling, This is what caused industry to collapse.
Forward two decades and a similar story: the UK’s last current account surplus was 1985.
We have been living beyond our means balancing the books by allowing vast flows of capital to come in to the UK. Some of this has gone into investment, but far too much has gone into property, existing companies and government bonds. Ah, says Mark Littlewood of the IEA free market think tank: if the Chinese want to lend us money so we can buy their goods at knock down prices then that’s fine and dandy.
Does he really believe the Chinese are the fall guys here? Likewise is it fine that London property bought up by overseas millionaires lies empty at night while Londoners are cleansed from areas of the capital, and homelessness for thousands is just one pay cheque away?
Between 1997 and 2010 the UK sold off firm after firm, from Cadburys to government buildings, to pay for the imports we cannot afford. £600bn worth of UK assets were flogged off. This props up sterling and continues the vicious circle of decline. Free markets? Not so: China, Singapore, Korea all have governments which control the wage profit division and which target their exchange rates.
In May I went down Big Pit in Wales. Among the tourist party was an Austrian engineer working for TATA.
“Will Port Talbot survive?” I asked him. “I don’t think so.”
“How come Tata can make profits from steel plants on the continent? “
“The governments have invested in their steel industry.”
“I thought the EU forbade this.”
“They find a way.”
Markets can be a good servant but they are a bad master. The UK government needs to get real: the markets destroying Port Talbot are not free.
Governments around the world plan strategically to achieve their goals. The French prevent foreign take overs of companies such as Danone, on the grounds that it is a vital strategic player. The UK Monopolies and Mergers commission used to be able to action a national interest clause. The UK government abolished this when it set up the current competition regulations. All in the name of promoting free markets: but if others do not do the same then the market is not free: it means the market is manipulated by other governments at the expense of the UK.
The same applies to environmental taxes. How can it make sense to be putting environmental taxes on UK steel production jacking up its price compared to Chinese steel which does not face the same taxation? The result is that our steel industry collapses while the more polluting overseas industry survives.
How is it a free market when the USA has proposed a 200% tariff on certain steel imports?
All so the UK consumer can buy cheap?
What about the argument that UK manufacturers need the cheapest steel?
As a result of our lack of long term vision UK industry now accounts for barely 10% of UK GDP. Yet manufacturing still counts for more exports than services. The latter will never close the trade gap. What is more, manufacturing ,to this day, is still where productivity increases are easiest to achieve. We need it.
Instead, we are living like a tenant in unfurnished accommodation who is paying the landlord by selling off all their own possessions. The bed will be the last to go.
When there is nothing left to sell, you are on the streets, at the mercy of the kindness of strangers.
And finally, the banks. There is no doubt that a properly controlled banking sector can facilitate the creation of wealth by channelling capital to where it can be invested. That is not a full description of our banking system. Over-light regulation combined with governments setting over-low interest rates after the dot com crash encouraged greed and reckless lending. This created trillions of dollars of debt that could not be repaid. The banks syphoned wealth from the real economy and then governments forced austerity on us all. Again this is not free markets: this is a perverted form of socialism which bails out the rich at the expense of the rest of us. And as usual, the money flowing in to London inflates the value of the pound, bankrupting producers.
Tariffs, dumping, business taxes, exchange rates, these are all affected by governments.
So Ken Clarke is wrong. Government intervention works, while in the UK we have stepped back and allowed the long steady decline of our industrial base. I’s time to wake up. The Labour Party must take responsibility for its past failure to tame the financial markets. Selling off the family silver has got to stop. If we do not produce, eventually we will not consume.
There is such thing as family. There is such a thing as neighbourhood, village, town, region. And there is such a thing as country. And this country needs a less dogmatic, more humane and more intelligent government.
Support Jeremy Corbyn’s campaign to protect the Steel industry. Support a leader who understands these issues. Save our steel industry.