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After Brexit, Britain’s competitors running rings around it

Trade 2023-02-08, 10:10pm

Rishi Sunak

Jehangir Hussain

Rishi Sunak’s reshuffle will make little difference: the country is going nowhere as the prime minister lead the country further down an economic dead end, writes Guardian columnist Rafael Behr.

Britain’s future will be shaped by a summit of European leaders this week, but Rishi Sunak, as prime minister of a very sovereign nation, will be absent.

It is one of the more subtle degradations of life outside the European Union. Heads of government gather in Brussels to decide things that affect British voters, who are represented by an empty chair.

The mechanism is slow and poorly understood. That is why Eurosceptics got away with claiming for decades that “Europe” was something done to Britain by foreigners, when all along it was something that Britain negotiated for itself in partnership with its neighbours.

Brexit is a self-fulfilling prophecy. It turns Brussels into the creature its paranoid antagonists imagined – an engine of decisions that Britain can neither ignore nor change.

This week’s agenda has an item of particular concern for a country in economic torpor, unsure how to make a living for itself in the 21st century. The question is couched in the arid argot of Brussels summitry: “In face of the new geopolitical reality, EU leaders will discuss long-term competitiveness” and “how to harness the full potential of the single market”.

That means waking up to US moves to corner the market in low-carbon technology. It means cultivating European green businesses and dissuading them from flying to California in pursuit of tax breaks worth hundreds of billions of dollars.

It means drafting an answer to Joe Biden’s Inflation Reduction Act, an era-defining law signalling the death of ultraliberal globalisation and covering its grave with subsidised solar panels and windfarms, made in America.

This is “the new geopolitical reality” that EU leaders are pondering. The act is Biden’s answer to interlocking threats: the climate crisis; Russia as a rogue state; a new cold war with China. Europe faces the same three challenges. Unilateral US protectionism adds a fourth.

There is consensus in the EU that the existing state aid regime – the rules to stop member states skewing the internal market with favours for their national champions – needs changing. The system has already been bent out of shape to work around the pandemic and the need to quit an addiction to Russian gas.

There are differences over how far to go down the road of continent-wide industrial management. The European Council has to balance the views of big and small countries; net budget contributors and recipients; statist France and the pro-market Dutch. The outcome is always complex and incomplete – a fudge in perpetual progress.

When Britain was in the EU, those deals only registered in Westminster as demands for money that a prime minister must refuse, laying down “red lines”, brandishing a veto. Post-Brexit, they don’t register at all.

They should. The UK has skin in this game. We, too, have clocked how vulnerable global supply chains are to disruption by pestilence and war. We, too, would like to be a hub for high-skill, high-wage green jobs. If everyone is going to be driving electric vehicles and heating their homes from renewable sources, Britain wants to be in the business of batteries and turbines, or innovating alternatives.

What Britain doesn’t want to be is a nation of consumers importing stuff that has been invented and manufactured in China, the US or Europe, because those are the big players who got their act together, and we are a medium-sized laggard that didn’t.

Sunak knows this is the task. He doesn’t have a plan, but he has a plan for making a plan, beginning with a reorganisation of Whitehall

New portfolios have been created by mashing up and re-slicing the old departments for business, international trade, digital, culture, media and sport. There is now a secretary of state for energy security and net zero (Grant Shapps), one for science, innovation and technology (Michelle Donelan) and one for business and trade (Kemi Badenoch).

If progress on climate policy, energy and industrial strategy is measured by volume of relevant cabinet job titles, Britain’s commitment has been dialled from two to three – a 50% increase. But that isn’t how it works.

The prime minister moves people around to create the illusion of action. He appoints Greg Hands, a former cabinet minister with professional credentials, as party chair. Then, as Hands’s deputy, he instyalls Lee Anderson, an aggressive culture warrior qualified only for crass provocation. That is not the choice of a leader who is serious about making the Tories fit for government. It is a classic symptom of intellectual paralysis in a tired administration.

Sunak is fiddling with the laces on shoes Britain has yet to put on for a race that our competitors are already running. There are two separate but related reasons why Sunak cannot catch up.

A large part of the Conservative party is allergic to government meddling in the economy on the scale required for a dash to green tech. The impulse for radical economic reinvention has already been spent on a different revolution, Brexit, whose keenest Tory advocates believe the best thing the state can do for enterprise is get out of its way.

There is an interventionist school of Brexit that would use regulatory autonomy for industrial activism. (Boris Johnson counts himself a disciple.) But the dominant strain is a libertarian cult whose fantasy economic policy was one that Liz Truss tried, with disastrous effect, and would happily try again in the belief that its only flaw was poor communication.

That leads to the second problem. Truss’s fiscal misadventures, on top of Johnson’s bombast and general Brexit turbulence, cost Britain its market premium as a serious, reliable country when bidding for foreign investment. The effort to restore that status leads to a trap. Caution in all things, especially austere budgets, signals a necessary commitment to stability, but at the expense of bold decisions that might get the economy moving again. Fear of spooking markets compels the chancellor, Jeremy Hunt (and his Labour shadow, Rachel Reeves), to prove their financial sobriety by pledging to do no more than tinker at the margins of a stagnant status quo.

That is a chill factor felt by a lone-rider economy, exposed on the doorstep of a much bigger, better-insulated continental bloc. The supposed compensation is the sovereignty to act quickly and make our own rules. In theory, that permits agility in fields where there are no established standards or dominant players. But exploiting those industries of the future requires political leadership blessed with strategic foresight, high-quality governing institutions at local and national level, plus the fiscal headroom to place some risky bets.

None of those conditions pertains in Britain. Even if they did, the sheer size of the single European market would exert a gravitational pull. Anyone investing in Britain will want to sell to the continent. Bespoke rules can be written in Whitehall to give indigenous companies a head start, but they’ll end up aligned with whatever Brussels does to avoid putting a burden on businesses that trade in both jurisdictions.

The drivers of Brexit can keep revving the rhetorical engines of sovereignty in celebration of their imaginary escape from Europe. That won’t get Britain out of its economic and strategic dead end. Then, eventually, when the passengers are sick of the pointless din, the choking fumes and going nowhere, the gears can be put into reverse.