A new economic vision for the Lib Dems

The Liberal Democrats need new thought on how we view the economy and the role of the state and this idea could influence what we choose to support. We often struggle to find an economic system we can get behind.

Unrestricted capitalism leads to unacceptable inequality. The Conservatives stand for a small rich elite, while everyone else struggle to make ends meet. The Corbynite vision of socialism would leave us all worse off. The Liberal Democrats must form a new vision of how our economy should work and what role the state should play in it.

I would propose the Enabling State as our vision.

The state has a duty of promoting liberty in all its forms, and to ensure everyone has the chance to make the best of themselves. This would include freeing people from poverty, through a basic income, to ensure everyone has the money for basic needs.

It would aim to ensure that everyone had the same educational base to grow from, as well as ensuring they remain healthy. It would use policies such as the pupil premium to ensure that everyone has an equal chance of succeeding. It would invest in science and infrastructure to ensure that our economy is one of the most productive and well off economies in the world, putting us on the edge of new discoveries, including in areas vital to the continued existence of humanity on this planet.

We must eschew the corporatist vision proposed by the Government. Our vision would be the support of a high-wage economy, with support for the industries that will prosper in the next few decades. Green industry, computing and high-skill manufacturing could be the strong points of our economy. Support for these industries, ingrained in a proper strategy to boost skills, has the potential to bring a huge number of high-wage jobs to our country. This would reduce both national and inter-regional inequality if these industries were in the worst-off regions of the UK. Along with significant spending on infrastructure, we could reduce the country’s economic dependence on the South East.

The Enabling State could be our view on how our economy works and the state’s role within it, aiming to maximise liberty for everyone. It is an idea that would survive the automation revolution, able to adapt to the new challenges that we will face in the next few decades. It offers something that neither the Conservatives’ 1980s state or Labour’s 1970s state can offer, change.

I will soon be blogging more on this topic on my blog.

* Oliver Craven is the Liberal Democrat candidate for Sleaford and North Hykeham.

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83 Comments

  • Thomas Shakespeare 31st Jul '17 - 5:16pm

    Hi Oliver, Agree completely. Have you heard of Vince’s idea of some sort of account for further edcuation, vocational colleges to equate it with higher education? Think this would fit well with your ideas.

  • Lorenzo Cherin 31st Jul '17 - 6:00pm

    Oliver, Oliver, never before, has a boy wanted more

    Oliver, Oliver, won’t ask for more when he knows what’s in store !

    Excuse my quoting the late great Lionel Bart , in his , ” Oliver ” the classic musical version of Dickens , but your piece is music to my ears!!!

    And , while on the theme…

    ” Please sir, I want some more…”

    Creative industry never get’s enough attention ! Nor from you here.

    It is at the heart of our economy.

    And as one within it , I know how important it is.The extent of the struggle. The effect of the effort.

    Oliver , there are many who’ll say, your vision is not new, but old , classical, social liberal, indeed all the above. But it is what we need .Too often some in our party see the divide in the varying strands of thought and policy and philosophy behind both.Many of us every so often emphasise the connection.

    I too am in the East Midlands, in Nottingham, you being in Lincolnshire, see you around!!!

    I looked at your blog…Omniliberal. All encompassing liberalism. Not all powerful.

    You, none of us are omnipotent.

    But …omni potent …?

    Potent, strong, arguments, not control, powerful.

    You are here, we must all be ….more , so…!

  • This reads as a bonanza for the oily John DeLoreans of this world, all with the most convincing of proposals which just require an injection of public money to deliver a cornucopia of benefits.
    If you were really sure of the areas which would prosper with support you could invest your own money.
    This involves hose-piping tax money at anyone who asks as long as they wrap a ‘teccy’ disguise around it.
    Politicians and civil servants have demonstrated how useless they are at picking and backing winners. Capitalism has many flaws but attempts to bypass it have always failed. People backing technologies with their own money are much more careful than governments.

  • David Evershed 31st Jul '17 - 7:05pm

    I agree the Lib Dems need to have a clear position on economic liberalism.

    This should be based on free market competition and free trade. Of course there will be a need for good regulation around this to prevent abuse.

    Government needs to set a context for commerce and industry to thrive and this extends into ensuring suitable education of future workers.

    If government wants to help increase wealth and encourage higher paid jobs then it needs to help improve productivity which has been stagnant in the UK for the last decade and lags behind many other developed countries. This might be through tax breaks for investment in automation and not blocking takeovers by more efficient companies. Success would be measured through the improvement in GDP per head rather than the change in GDP.

    The proposal for “freeing people from poverty, through a basic income” is a social policy not an econoic policy. It incentivises people to not work and if set at any meaningful level would bankrupt the country. The affordability of social policies is dependent on the tax revenue government can raise which in turn is dependent on a successful economic policy.

  • Christopher Haigh 31st Jul '17 - 7:06pm

    @lorenzo cherin -‘ creative arts industry is at the centre of our economy’ . Hey you’re not joking. Very soon we’ll be totally dependent on foreign currency earnings from overseas Pink Floyd concerts!

  • Aaaaahh, picking winners again.

    Seriously, anyone who knows for sure which industries will prosper in the next few decades shouldn’t be wasting their time posting on LDV. They should be out there investing and making it happen. However, most people who think they know for sure will be wrong.

    Of course Government should be an enabler, but it doesn’t have a crystal ball and is notoriously bad at “picking winners”.

    Lets look at things like UBI, lifelong learning accounts, expanding R&D tax credits, encourage and support Makerspaces and Hackspaces so people with bright ideas can test and prototype quickly, and phase out Employers National Insurance Contributions which are a tax on employing people.

    But don’t presume that Goverment can predict the future……

  • “Politicians and civil servants have demonstrated how useless they are at picking and backing winners. ”

    Except in China of course… They seem to be pretty good at it… State capitalism..

  • @Palehorse – so the USA shouldn’t have subsidised Tesla? And the Eu shouldn’t have given Airbus launch aid? All of which now sustain thousands of Jobs? We need to wake up and develop an industrial strategy fast or get left behind! Thatchers plan of a Britain propped up by a financial services industry has failed many parts of the U.K. We have a deficit of well paying jobs in this country for the poorly skilled/ educated and as the Brexit vote demonstrated politicians are being ordered to address this. TRYINg to educate your way out of this wont help those people who lack the appditude for education but are good with their hands. Until we learn to speak to manual workers we will fail as a political party.

  • Christian,
    I agree with much of what you say about the need for more craft and fewer academic ones.
    However, Tesla is American and Airbus French. The record of the British political elite is abysmal with no prospect of it getting better. A failed industrial strategy may be much worse than none at all, depriving more valid options of attention.

  • Andrew,
    And China is run by the Chinese in a manner which would horrify the readers of this website.

  • A Social Liberal 31st Jul '17 - 10:06pm

    Oliver

    What would you consider a basic income to be? The same as the minimum wage? One that takes individuals out of poverty? Would you increase it for the disabled?

    Would you propose keeping housing and council tax benefits for those who are not in work?

    Until liberals start firming up their ideas on BI by answering questions like those above the idea will not find favour with the general public

  • Iain,
    The preamble can not be challenged on its intent but no government or political party, in the solar system, would want to do anything else but ” encourage the necessary wealth creating processes”. If it were easy there would be no poor countries.
    Similarly, the preamble offers the terms competitive and co-operative in the same sentence and also state and market but with no view on where the party sees the balance point.
    Again the breadth of that spectrum covers just about every economic model there has ever been.
    Christianity comes in for some criticism hereabouts but at least it has some detail such as “ox”, “ass” and “neighbour’s wife”.

  • David Evershed – I remember that Japan, West Germany and the East Asian Tigers did the opposite. Sony, Huyndai, Samsung, POSCO, Siemens, Borsch and so on became what are today because these countries blocked “takeovers by more efficient companies”. Let’s take an example of ARM Holdings. A more proactive and ambitious government would attempt to turn it into a global giant. In many cases, established firms take over young startups to prevent future competition, but we must allow these young firms to become giants.

    Young companies will not be efficient during the first five years. Actually, it will make losses. But good ones will gradually improve via a “learning by doing” process, but the problem is whether it is allowed to do so or not.

    Nick Baard – Excuse me, Japan, West Germany, France, South Korea, they did not fail, right??? The key is discipline. Without discipline, any kind of state support would become rent-seeking. Historical evidence showed that the best form of discipline was export discipline, which means the level of support (like access to bank finance, for instance) would depend on firms’ export performance on international markets.

    Palehorse – The records of Labour (focuses on “who own what” rather than actual operation) and Conservatives (do nothing) do not guarantee that our strategy will fail. We can learn from successful examples like Japan, South Korea, West Germany or even France (you know, France overtook Britain just 25 years after 1945 thanks to dirigisme policies). While the policies in Japan, Germany and France were more of indicative planning, you liberals would scream like mad men if you read about Korea’s economic development.

  • Nick Baird – Well, life sciences, advanced materials, electronics, automation technology, space and aerospace. But I prefer to focus on the five latter sectors, since in Britain they have more room to grow, as they are very small compared to life sciences sector.

    You know, the level of robot usage in British manufacturing is much lower than that of Germany, South Korea and Japan, and all these countries have lower unemployment than that of Britain. I mean, we should have a policy to double the use of automation technology to boost our manufacturing productivity. According to a Barclays report, investing an additional £1.2bn in automation has the potential to add as much as £60.5bn to the UK economy over the next decade; this represents a return on investment of £49 in economic output for the every £1 invested in manufacturing automation. In other words, having such a plan would make our tax and spending plan much more credible than that of other parties, because it will pay back, unlike Corbyn who still promised to balance the book after 1 term despite having a tax plan of the realm of economic dreamland.

  • Peter Davies 1st Aug '17 - 7:33am

    Basic income is not really about ensuring everyone has the money for basic needs. The current means-tested system could do that (not saying it does). It’s about letting people chose their own route out of poverty. They keep the basic income if they study or they do something voluntary or creative or try to start a business all of which may be better routes to a career than applying for hundreds of random jobs as currently required by the DWP.

  • Peter Davies 1st Aug '17 - 8:04am

    @A Social Liberal
    Yes, we do need to firm this up. We should be clear that a means-tested system would remain in place, topping up everyone currently on benefits to their current level if the basic income doesn’t cover it.

  • Thomas,
    Whether other nations have deployed successful industrial policies or not is irrelevant to our situation.
    My point remains that one could not succeed here until bigger problems are tackled first, namely the corrosive level of corruption, the incompetence and dysfunctionality of government and the complete inability of the parties to agree and deploy a long term plan which would survive the political cycle.
    My employer once seconded me to the DTI for two years and I saw, with my own eyes, how public money has to be accounted for to the last penny but can be stolen, in vast amounts, as long as the thieves have the correct paperwork.

  • The future is in small and medium businesses, as they will create the most jobs…bugger companies are going for more automation and thus will create unemployment, in fact the Governor of B.O.E has already highlighted it. So we need an industrial and education policy going hand in hand…One complementing the other. A small business start up scheme, with emphasis on manufacturing businesses and research and development. Seeding these industries companies with high unemployment by creating zones that have low rates and low tax and then offering training funds to companies to take on long term unemployed and train them. Also encourage companies to become embedded in the further education system as they are in other countries

  • Perhaps the enthusiasts for automation can explain to me how increasing output and profits for company owners benefit all those put out of work by the decrease in jobs (at local level) at the lower end?
    In my case, a handful of IT guys developed a programme that destroyed a couple of hundred jobs across the UK. The beneficiaries are shareholders in the US.

    As for the ‘benefits’ of takeovers: the words ‘Kraft’ and ‘Cadbury’s’ come to mind.
    The ‘more-efficient’ multinational I worked for took over several small UK companies over the years. Each time, it then axed lots of jobs at the one it had swallowed up, and dumped the extra work on existing staff, for no extra pay.

  • D Howitt – I’d love to build a Mittelstand, but we must change the whole business culture and education system. https://en.wikipedia.org/wiki/Mittelstand. SME schemes in industries may need bigger state financial support because manufacturing sectors tend to require big initial investment that things like tech garages. Britain’s financial system and investors is also much more short-term oriented, so we must also reform things like Capital Gain Tax to encourage buy-to-hold investors.

    But please remember, no big countries have become rich off the back of small firms. We also need big firms that champion national R&D to drive technological progress. Besides, we need to encourage automation investment in manufacturing to drive up productivity and eventually tax revenues (read my post at 4:17 am). Germany has both a powerful Mittelstand and a large number of MNCs, and it has a far higher level of robot usage than Britain.

    Palehorse – China and South Korea in the past prove that you can still do so even if corruption exists. Samsung, Huawei…did not come from thin air.
    Well, but does the party dare to include an open anti-corruption message in the next manifesto?

  • Cassie B – well, the top 3 robot users: Japan, Germany and South Korea have lower unemployment rate than us (below 4%). The problem is education and the existence of a strong domestic SME base combining with world-leading MNCs. Even giant MNCs can be created from scratch (look at China).

    But I agree with you on the foreign takeover issue. Recently, Emmanuel Macron has just nationalized a French shipbuilder to prevent an Italian takeover. There would be no such thing like an ARM takeover (which was initiated as a result of falling pound following Brexit) in France.

  • David Evershed 1st Aug '17 - 11:26am

    CassieB asks how
    “enthusiasts for automation can explain to me how increasing output and profits for company owners benefit all those put out of work by the decrease in jobs (at local level) at the lower end?”

    The answer is firstly that all consumers benefit from the lower costs that automation and efficiencies bring. Books, many foods, TVs, washing machines, telephones, computers etc were once out of reach of the ordinary person.

    Secondly, if your own company doesn’t improve productivity and lower costs, another competitor (home or abroad) will. As Bob Dylan sings “he not busy being born is busy dying”.

    Productivity has soared since the days of the Luddites but rather than automation causing mass unemployment, we are close to full employment in this country.

  • Peter Hirst 1st Aug '17 - 11:28am

    We need an industrial strategy that encompasses our strengths in a global market place. We should provide more good and services locally. We should not compete in areas like mass food production that favour low environmental, social and ethical standards.

  • Neil Sandison 1st Aug '17 - 2:03pm

    The enabling state fits alongside the preamble to the parties constitution .We should enable and empower both the individual and communities to improve their life chances and enhance the common good of their community .However the basic income would be seen as a hand out not a hand up .What we must argue for is a social security system that treats people with respect in their time of need and doesnt sanction without just cause pushing more people into food banks and destitution .That doesnt see child poverty growing or illnesses like rickets ,TB ,and mal-nutrition reappear in this new century when it should of ended at the end of 20th century .Enabled community and social enterprise can assist in making a difference at a local level at relatively low cost to the exchequer .Governments claims the credit but communities turn our villages towns and cities round and enable them to flourish which adds to the wealth of us all .enabling communities in partnership with their local councils can build and refurbish more homes,regenerate derelict land attract partnership funding and provide employment oppertunities where none existed before enabling and enpowering people
    is the social liberal thing to do.

  • David Evershed – and with automation in Britain, these products will be more likely to be produced domestically rather than being imported.

    The problem is that free-market policy will not make short-termist British business leaders more willing to invest in automation and computerization. We need a strong government which actively involves in industrial policy-making.

  • The Citizens Basic Income trust has a lot of background material and costings for two alternative proposals for a basic income http://citizensincome.org/news/new-microsimulation-research-on-an-illustrative-citizens-basic-income-scheme/.

    A Basic income was Libdem Policy up until 1992.

  • “A new economic vision … “

    The thing is that economics is to politics as theology is to religion. It proposes a particular way of joining the dots of observed ‘facts’ to make a picture in our minds which we then use to navigate the world.

    Constructing this picture is HARD so we like to stick with our version and subconsciously select only those facts/interpretations that fit, rejecting the rest so that very different interpretations of the same data persist. This makes economics and theology *contested* in the sense that disputes are wide and deep unlike, say, physics where they are limited to the frontiers of research. So, as with theology, there are multiple schools of economics which offer radically different interpretations, by far the most prominent being the neoclassical which is essentially the Tories’ house religion.

    And like the Ptolemaic (geocentric) model of the solar system; it gives a fairly good fit to the facts as long as you don’t know anything about gravity and your data quality is poor. The neoclassical school is similarly riddled with contradictions but powerful people back it because it supports their desired outcomes. It’s easy to think it *is* economics.

    E.g. Tories who own businesses like cheap labour because, other things being equal, that increases profits. So many support mass immigration (covertly when politically expedient) even though there is an obvious fallacy of composition (see Wikipedia) – if wages are universally low the economy cannot thrive because there aren’t enough customers (c.f. the USA now). And what on earth is a “successful economy” if it’s not one where the workers get progressively better off? And what of the housing or infrastructure or quality of life implications? The Tories blame the planning system or simply change the subject.

    A war is being fought on the Internet between the economics of the failed establishment and an emergent Liberal economics. The Lib Dem party should be engaged but it can’t be because its ‘policy-making’ doesn’t address overarching themes – only details to write into manifestos.

  • Dave Orbison 1st Aug '17 - 11:17pm

    Corbyn would leave us worse off??? Not the most thorough analysis. But if by that you mean some taxes would increase to pay for NHS improvements and public services then I’d be happy to pay up.

    We have had decades of Governments of all colours promising the ‘better quality than ever for half the price”. It was a con perpetuated by Govt seeking re-election and lower taxes.

  • After the mess of the last decade, I really don’t get why economists are still held in such high esteem. I’ve never yet seen any economics model that actually deals with the real world successfully. The greatest error of economists is that their models are prim, and human nature is not. When cost of an activity becomes an issue, human nature mobilizes towards that activity at a cheaper cost often in some dodgy and dark places.
    Cold hard fact – All economic models have no ‘symbol’ for dodgy.

    How can we know how far human nature will go to achieve what it wants, at cheaper cost or even for free? No economist ever saw coming, the likes of P2P file sharing, torrents, Kodi streaming. How could they possibly see the dark recesses of an adolescent mind, with a keyboard and a desire for free stuff ?

    And that same ‘human nature thing’, happens everywhere you look, even in the non-digital economy. Europe is wealthy and Africa is poor. Europe devises a set of draconian protectionist trade regulations which crush the possibilities of Africa getting onto its feet. So once again, humans do what economists never envisaged they would. They seek whatever dark routes they can, to migrate from African poverty to European wealth in flimsy rubber boats.

    So, take your chosen economist off his/her plinth and think positive. The ‘economy’ is what actually happens whilst economists are otherwise distracted by their data-sets and spreadsheets. Better to listen instead to the words of your neighbours’ son who is busy installing a Kodi box. He knows what’s coming next, or if he doesn’t, he knows someone else who knows.

  • Dave Orbison – The problem with Corbyn is more about his tax plan. He put too much into an egg basket, and if he can not raise the planned amount of tax revenues, his plan will go badly (like in France under Hollande). We need an all-round tax raise to bring our average tax rate to Continental European level, not just on a small group.

    Also, the way Old Labour (or Corbynists) handled British industry during 1970s was dead wrong. If you read about East Asian Tigers, you will find out that their approach was wholly different.

  • Gordon – That’s why I want a system with a strong state that actively involves in industrial and education policy, as well as providing the mass with social safety net and regulations to protect them from being exploited by the rich (a.k.a Keynesian economics)

  • Sheila Gee,
    An excellent post for which many thanks. I could not agree more. Your contributions are one of the few beacons of common sense in a sea of embittered old men bewailing what’s past and juveniles clutching at straws.
    If you had a blog, out there in cyberspace, I would faithfully read it.

  • Loads of good points in the initial article and comments below, and here are my thoughts:

    The economy should serve the people, and not the other way around. Of course the reality is that they are dependent on each other, but we are destined for trouble if we see “a strong economy” as the main goal, without a remembering to qualify that it’s a tool, not a prize.

    Basic income – I think the wider public are a long way from even considering the concept, but it’s a conversation we should be having. Not least because rival parties are, and it forces us to think about what is it we hope to achieve from things like benefits, or tax-free income, and what does society gain from new mums staying at home that bit longer and so on. There’s a lot to learn from what’s happening in the Nordic countries trying it out. It’s inevitable that people will fret about the cost, and worst of all, the thought of other people taking money whilst never giving back, but I expect the fear is entirely disproportionate to the reality.

    Investing in emerging technologies and the associated education is something I can get behind. I understand concerns about whether or not government is best placed to predict the future, but we just have to not put all of our eggs in one basket. It wouldn’t be a case of buying loads of shares in an exciting start-up, but perhaps providing facilities that would substantially reduce costs and risks of starting a business that’s going to take years of R&D to fully establish itself. A lot of universities now have facilities to help their own academics or graduates turn their brilliant academic discovery into something that might be suitable for the market, offering business advice along the way. “Incubators” is the term I hear a lot, although I’m sure they go by various names, and it’s probable that tapping into these is a good starting point. However, I do agree with those who say we must ensure that we aren’t fixated on the academic, and a skilled workforce includes those who can work with their hands.

  • John Littler 2nd Aug '17 - 10:35am

    Before the expenditure is made on the likes of the Citizens Income, the economic and especially manufacturing base needs to re-built in Britain. This former workshop of the world has only 10% of the economy in manufacturing and it’s services mostly do not readily export. Hence we have a 6% balance of payments deficit, which has to be borrowed in now more expensive foreign currency.

    Cable made a good start as Business Minister with the Green Bank ( Also Davey), getting public money into industries, since the banks have largely pulled our or have been pulling stunts, as well as getting crowd funded money into SME’s via the likes of Funding Circle. Also, the expanded modern apprenticeships and making the case to save Vauxhall with GM, which was due to be moved to Bremen.

    Britain needs to get out of the thinking that effective Industrial policy is about picking winners. Look at the way Germany supports firms to retain staff and train them during recessions, which lessens the depth of recessions and ,makes the firms ready to expand when the economy turns up.
    Germany supports exporters with generous grants and keeps a golden share in major firms to prevent them from being craved up for short term profit or sold abroad. They have kept the same profitable industries that were at the top of their share listings 40 years ago. Britains are largely trashed or gone.

    Germany shows the standard for quality public sector training with firms involved and do not suffer the same skills shortages. Hence they have 5 times the UK’s manufacturing and an 8% balance of payments surplus, strong public finances despite supporting the likes of Greece and strong and settled pensions with the long range sums all done.

    Germany has strong regional government able to promote and support regions and has far less regional inequality than the UK. The only weak areas are ex communist and it is bringing them up at huge cost, rather than running them down.

    Germany has good reliable low cost trains and affordable rented properties in aplenty, to support workers. They even keep down the cost of going out for food and drinks as a policy. It also operates a policy of moving towards green energy, having closed down nuclear on safety grounds after Fukishima, where the site is still a danger to the entire region, which you see yourself on youtube.

  • John Littler 2nd Aug '17 - 10:35am

    2.
    Much of this policy is largely non controversial in Germany, which is assisted by their PR voting system and which helps give their businesses the continuity they need.

    Being inside the EU does not stop Germany from running an interventionist Industrial policy and it provides them with the markets they need, but does not stop them selling well elsewhere such as USA and China, where no trade deals yet exist.

  • Tony,
    I did attempt to read “Beyond the Dependency Culture” but I lost interest upon reaching the following

    “The only way to avoid catastrophe will be for the world community
    to agree and carry out a global compact ”

    Best of luck with that Jimmy.

    There then follows an attempt to organise the world such that the rich stay rich without making anything (just by sitting back and thinking very clever thoughts) and the poor countries are allowed to slowly improve their lot by doing all the simple things like making cars, ships, mobile phones, computers, areoplanes, trains, power stations, robots, engines and space rockets but only so long as they do it without increasing their population and in an eco way.

    I think I will stick with Susan’s view that economists are a waste of space and rations.

  • John Litter – I totally agree with you. I have to add to another important thing which is called “export discipline”, which was widely practiced by Germany and East Asian Tigers to prevent rent-seeking activities. Specifically, the level of technical and especially financial support from the state must be determined by firms’ export performance over the long run. They focus on export performance because it illustrates firms’ competitiveness in the unforgiving international market, and firms are not allowed to hide in domestic market behind protection.

    We need a much more powerful British Business Bank. It must be as big as a FTSE 100 listed company.

    We also have to bring our foreign takeover law at least to the US level, if we cannot bring it to the same as France. Foreign takeovers that aim to exploit tax advantage, pound slump or short-term profits, or to buy up growing indigenous startups must be BLOCKED OUTRIGHT. Look at the way Emmanuel Macron has just nationalized a strategic French shipbuilder.

    We need devolution and give regional government more power to protect jobs and industries, including the right to buy golden shares and to block foreign takeovers.

  • Also, we should begin with scrapping Hinkey Point and giving Rolls Royce nuclear technology a chance. This proposal will be extremely attractive to voters. Smaller-scale power plants will suffer much less from delays and cost hikes, therefore investments in such projects will have more tangible impact on jobs and productivity than white elephants like Hinkey.

    Frankly, I want to party to set out a plan to abolish nuclear power entirely in the long run, but only after building a strong domestic industrial supply chains for renewable energy sectors.

  • @Thomas. Completely agree on Hinkley Point. HS2 as well. If we need more capacity make it a standard line at a fraction of the price. Any businessman would have walked away from these projects a long time ago.
    The UK is not a land of natural resources and therefore the only thing we have to generate wealth is the talent and endeavour of our population. Investment in skills and education is the thing that will be the key to our success, which makes a nonsense of this ‘higher education benefits the recipient so they should pay for it’ approach.

  • Tony Vickers in his comment above identifies the three key components of a Liberal economic policy: Land Value Taxation, Citizens Income and Banking Reform (removing the ability of banks to create money / debt).

    All three are closely connected and complementary to delivery of a socially liberal economy. LVT and Banking reform are closely connected as so much of the exponential debt increases we see today relates to lending utilising inflated land values as collateral.
    The Citizens income is only workable as a distribution of the surplus that is produced by the application of labour and capital to natural resources, as for examples happens with the Alaska oil citizens dividend.

  • One of the many positive benefits of Land Value Tax is that it is not really a tax i.e. it doesn’t create an additional burden on the user because the land rent exists whether it is collected as public revenue purposes or retained by the freeholder. This should make it very appealing to elected politicians in that they can simultaneously raise revenue and reduce taxation elsewhere.

  • John, could elaborate please. I didn’t understand. How can it other than a tax if it raises revenue for the public purse? Is it new money? Or a new term for rates and we all end up paying the same as now?

    Also the talk of “small reactors” is a perfect example of hopeless, but seductive, proposals being used to fleece the public, right now.
    I know a lot about nuclear and the business case for small modular reactors is both absurd and imaginary. But it suits a lot of players to pretend otherwise as millions are being handed out to its supporters. Those who know the truth are ignored and those who don’t know just swallow the yarn.
    It is a perfect, and current, example of a well meaning industrial policy being exploited by the clever at the expense of the taxpayer.
    The concept began in the US when Congress was looking for a way to protect their nuclear industry. They soon realised it was a dead end and stopped the funding, so the US parasites, no longer able to feed from the dollar hosts immediately came to the UK well aware that our industrial policy is in the hands of gullible and desperate civil servants and MPs. No such reactor will ever be built and all this money is a dead loss. We can’t have an industrial strategy with our current system. There are too many under the table deals and it is too easy to muzzle the truth.

  • Echoing John Payne’s comment, this is a good summary of LVT https://forward-thinking.org.uk/land-value-tax-reduce-tax-bill/

    LVT is not really a tax in the usual sense of this word. It is actually a means for collecting the surplus revenue that is the result of the land owners who speculate in what their past investment has given them–access and ownership rights to land.

    Once we accept the fact that LVT is not a tax, we are in a position to see that the surplus from the land is actually a national asset. It should belong to the community, whose past tax payments that have been spent in making the land accessible and in building up the infrastructure of the community. This benefit rightly belongs to ourselves and so we begin to appreciate that its “earnings” or surplus rent should ethically be used for national and community purposes.

  • I implore you not to take this path. If it walks like a duck and quacks, it’s probably a duck.
    To try and spin this tax as not a tax but “surplus revenue” is actually offering an insult to those whose intelligence is at least equal to yours.
    They will just ignore the convoluted word-smithery and think the worst of you.
    Further, they will then suspect any other claims as intrinsically dishonest.
    We had this with the “second referendum” that wasn’t. It was a “first referendum on something different”. The listeners deduced, quite quickly, that to reject the deal in this referendum would have the same effect as if the first ballot paper had been presented again.
    Please, LibDems don’t do it. Attempts to use inappropriate words to hide something unpalatable are immediately seen through and make you look like you are intellectually conceited and superior. Trust me, if some landowner has to pay it, they will see it as a tax. Honestly.
    Just tell it as it is.

  • LVT may or may not have a useful purpose, but it is not a cure all and in itself appears to be terribly complicated…… in other words….. a difficult sell which if implemented will pour money into the pockets of litigious lawyers.

    We’ve had a one trick pony with a virtually totally Brexit based campaign – pleased don’t let’s have another one trick pony with LVT.

  • David Evans 2nd Aug '17 - 8:34pm

    I’m afraid Palehorse is right on this and Joe is mistaken. However wonderfully we wordsmith the explanation as to why LVT is “not really a tax in the usual sense of this word. It is actually a means for collecting the surplus revenue that is the result of the land owners who speculate in what their past investment has given them–access and ownership rights to land,” the more we will be objects of scorn from those who read the three word headline – Land Value Taxation.

    What with this desecration of the English language; the debacle of people trying to pretend Student Loan are not loans, but a form of tax; and the pretence that the coalition was a triumph for Liberal Democracy, and not the Conservative triumph it really was; I seriously doubt whether many of us have the first idea of how to win elections any more.

  • I read the link diligently but I remain baffled by the claims. The renters won’t pay it, the landlord will?
    But if I were a buy-to-let landlord (I am not, I hasten to add) and a new bit of infrastructure gets built nearby (shops, road junction station) then the Land Value Tax man (sorry the Surplus Revenue man) increases my payment from £2,000 pa to £5,000 pa how do I pay it apart from increasing the rent? The value of my land went up but I can’t monetise that value unless someone buys it off me at the new higher value or I charge more to whoever is occupying my land. Surely??

    Also, if it comes in I am heading for my town councillor (lives three doors away) and demand that he rejects any improvement to my area (pot holed road = low value land = good). And I will fight tooth and nail to oppose any developments that could make things better round here because, again, increasing my land value is useless unless I can monetise it.

    So the posh areas get posher, as we poor types sell up in desperation and move to poorer areas which divide gets steadily worse so the posh areas clear out the riff-raff and the poor live in more remote and steadily worsening ghettoes.

  • Palehorse,

    for many economists advocating an LVT (including Henry George) they see the issue of taxation as an ethical issue as well as one of economic efficiency. The extraction of economic rents by a rentier class from the wealth producing factors of production – Labour and capital – is thought to be a primary factor in the persistence of poverty in a world that has seen exponential grpwth in its productive capacity throughout the 19th and 20th Centuries. Some prefer the term Land Value Capture to Land Value Tax to distinguish this characteristic of LVT.

    You are quite right that whether the nomenclature is a tax, license fee, ground rent or value capture is will be seen as a tax by Landowners. We need to bear-in mind that were LVT to be the substituted for council tax, business rates, SDLT, inheritance tax, capital gains tax and income tax on property most landowners would gain. This is particularly the case for individual higher rate landowners with high loan to property ratios following the withdrawal of tax relief on interest payments made by such buy-to-let investors.

    There are always winners and losers with any tax reform. As per the earlier link https://forward-thinking.org.uk/land-value-tax-reduce-tax-bill/ the principal losers would be those in the top 1% of the income bracket with the great majority of the remaining 99% seeing a reduced tax burden.

  • Palehorse,

    if Land Values benefit from infrastructure investment then rents will increase to the market level regardless of whether there is an LVT or not. This happens all the time in London e.g. with the Jubilee line and Crossrail. The rent is determined by supply and demand not what taxes or mortgage payments an individual landlord pays.

    The taxes to fund those infrastructure investments are collected from all, principally in the form of income tax, national insurance, corporation tax and VAT. If you are a landholder in London or the Southeast it is quite likely that the gains you will have accrued from land value appreciation in the past couple of decades has far outstripped the total of taxes you may have paid over the past 20 years. Contrast that with the renter who may have paid an equivalent level of tax but recoups none of the benefit of infrastructure investments.

    When billionaire oligarchs invest in London property they do so to benefit from very substantial gains in land values arising from infrastructure investments funded by UK taxpayers (until 2015 these windfall gains were tax free for non-residents).

  • Joe,
    I admit I don’t understand it very well but I can not see how else the landowners can pay it without passing it on to the occupiers?
    If that’s a poor tenant in a rich area they are out on their ear. If it’s the village bakery they will be replaced by a betting shop?
    And parts of London have become gentrified with no improvements to infrastructure at all. Just the wealthy moving in so the ‘community’ can claim no credit?
    Anyway I don’t see it anytime soon. “It will only affect 1%” will not be believed by a cynical electorate.

  • Palehorse,

    London has been developing its infrastructure for centuries and as the population density increases more infrastructure in the form of schools and GP surgeries are being added all the time further boosting land values. Key workers are being displaced and outpriced all over London. Dampening speculation that further drives up land values with an LVT is one of the principal arguments

    John Worstall of the Adam Smith Institute agrees with your assessment that it will never happen https://capx.co/land-value-tax-is-a-great-idea-but-itll-never-happen/ because as he puts it “…who would dare come between the English and that Great God of house prices?”

  • David Raw/David Evans,

    Labours and the Libdems mansion tax proposals were quite popular with the general public, but not so much in our important SW London constituencies. I doubt we will see a return to this in future manifestos.

    The communal benefits of LVT may not be intuitively apparent and require a degree of study and analysis to appreciate the benefit of removing the negative impact of taxes that dis-incetivise work or business activity. What is perhaps more politically feasible as a first step is an extension of council tax bands to make this levy a little more progressive and a move to site value rating for business rates.

  • David Evans – that’s why we have the term “Land Value Capture” to avoid using the word “tax”. Or, we should just flat out that the public must pay tax in order to get better public services, and Continental Europeans get better services because they are willing to pay more taxes. There is no such thing like lower taxes for better services. In the US, Tory economic policy is nornally called as “Voodoo economics”/”Trickle Down” by the Democrats and is rejected by the Coast. We should label any low tax, small state economic policy with that term from now on and reject it outright. Continental Europe has been famous for high taxes for decades. British parties have been beating around the bush for too long.

    Joe Burke – Can you give me the estimate of the potential revenues that can be raised from LVT?

    Joe Burke – Banking reforms are welcomed. We should also regulate shadow banking, which was the root of the last crisis.

  • Joe,
    I have diligently followed the links you gave but I still don’t “get it”. The benefits claimed look like wishful thinking and I can see the laws of unintended consequences biting back all through it. It appears predicated on the notion that land has a stable value and the ‘community’ increases that value through ‘infrastructure’ improvements.
    That’s not true. Land is in the same category as any other supply and demand issue.
    Employment opportunities attract people and the creaking infrastructure catches up later. The motive for the tax appears to be a desire to grab some of the house price inflation of former years but seems no different at all to just increasing rateable value within the existing system. It appears to be aimed at punishing Russian oligarchs and speculators but everyone must suffer. Rents in high value areas must all rise – there is no other way for the landowner to pay the tax. An established company making widgets in a factory occupying its own land suddenly see their business rates replaced with a swingeing land tax. The model says they should relocate to less valuable land. Poland maybe? China?
    It is no different to Council Tax except that it requires a numberless host of public sector land valuers and endless disputes.
    Please don’t think I speak as a laissez faire capitalist. I harbour secret dreams of much more draconian control of all the land within our borders with the aim of sweating our land asset for dramatically increased agricultural output (when free of CAP) and much increased house building.

  • Palehorse,

    if you have read the links you will have seen that virtually every economist of whatever school from Adam Smith to the present day has come to two conclusions:

    1. Land is NOT the same category as any other supply and demand issue. There is an ever increasing demand for land in locations where people need to live to find work that cannot be met by increasing supply.
    2. A tax on the land is by far the most efficient method of funding public revenue.

    Population increases and infrastruture go hand in hand. As population increases more infrasructure is needed. As infrastructure in improved more people are attracted to areas.

    LVT is not aimed at punsishing anyone. It is collecting gains arising from public and collective investments. Gains in land prices are speculative or windfall gains. They are not created by any individual effort but by the whole community collectively.

    One of the features of LVT is to make more marginal arras like the Northeast and former mining communities more attractive in terms of locating productive facilities. Council tax is among the most regressive of taxes we have and based on valuations from the 1990’s.

  • Joe,
    It’s just a tax, Joe. A tax.
    To those who will have to pay it (and it will passed straight through to tenants) an attempt to call it a reward to the government for collective investment will be adding insult to injury. If it ever progresses, its opponents will treat those claims with fury, vitriol and derision far exceeding my mild rebukes.
    I ignored the opinions of economists and thought for myself (it’s the best way). My ponderings were around how will those upon whom this tax will fall, react?
    It looks like the worst hit will be tenants and businesses in the South East and add to the crushing burden that rent already is. Businesses, including financial services, may obediently relocate to Middlesborough, as expected by the inventors of this tax, but do we seriously think so ?

  • Palehorse – a non-laissez faire should propose to reform the system to implement a sound industrial strategy rather than doing nothing. No country has ever become rich without a proper industrial strategy. China (and South Korea under General Park) is successful even with corruption.

    Another thing to so is to improve the non-existent British foreign takeover laws, at least to the same as the US if not France. Strategic industries must be ring-fenced.

    Industrial strategy must move away from picking winners, it must focus on innovations and the commercialization of innovations (Britain is very weak at the latter), combined with technical education reforms and the provision of necessary infrastructures and R&D facilities. There must be discipline on firms based on export performance (which is a strong and clearer measure of international competitiveness, because international competition is fierce and unforgiving) to prevent rent-seeking (for me, receiving subsidies but hiding in domestic market behind protection is a form of rent-seeking). Rent-seekers like that will lose their support and subsidies from the government. But this requires a more transparent political system. But as I said, China (and South Korea under General Park) is successful even with corruption.

    I personally prefer the German industrial strategy because it also focuses on building a powerful SME base.

    We should get rid of classical liberal economics (except for LVT which is still being under consideration) because it is not supportive for industrial development. East Asian Tigers, Germany and Japan all rejected classical economics.

  • Thomas,
    I appreciate your passion and understand your motives in your well argued posts.
    However, encouraging though I am I have been there and seen the reality. You keep pointing to nations such as China, Japan and Germany and want to see the same, successful industrial strategy as they.
    But you are pointing to the wrong comparators. The UK, in the implementation of a successful industrial strategy is on a par with Nigeria, the Yemen and the ISIS Caliphate and you might agree that they have governmental problems to fix before strategising.
    You may ridicule my ridicule but read ‘Private Eye’ and they attempt to whistle blow, but only scratch the surface of what goes on. I mention “Small Modular Reactors” because you did. Why do you think they are a winner? Because you read it? What did you read? Well a puff piece dictated by their proposers (ie those who will financially benefit). Did you read any counter arguments? No, because they are simply excluded from the media.
    The government ran a public consultation on the topic before allocating funding. The website glorifying these devices and calling for submissions was a tissue of lies. Many submitted counter arguments (I did). Tim Yeo ran a committee to look into the results of the consultation. What was the ratio of witnesses called in favour and against the proposal? Did you have to ask? It was 100%/0%.
    This intrinsic deceit runs through our national life like the word “Blackpool” through a stick of rock. The people suspect it, they are angry, but they are powerless. An industrial strategy with this backdrop is just a thieves charter.

  • Neil Sandison 3rd Aug '17 - 2:51pm

    We seem to be adopting very traditional solutions in this stream to adopting economic policy but the world is changing .We still waste an enormous amount of resources in this country both in terms of human talent and disposable consumerism when we could harness both and move to a more circular economy .There is no such thing as waste just a resource we have yet to harnessed .We should consider the common wealth locked up in every community and how best we can release that .Technology will continue to advance and we will have to learn to embrace it or be left behind but that does not mean new technologies will not create new employment oppertunities for example secretarial skills soon adapted to meet IT skills as the typewriter was replaced by the word processor .More flexible working patterns have emerged and long periods locked in an office or factory all day have reduced .We need to share workload and redefine what constitutes work .life long learning as Vince has indecated could produce a work force able to train and retrain over what is now a longer working life where most will be lucky to retire before their 70th birthday .

  • Palehorse – we used to achieve success with industrial strategy, but it was before the ww2, even though the Tories’ plan was inferior to ours at that time.

    But there were some of the underlying factors that are still staying unsolved, like labour-capital relation (the German solved it very well) or short-termism. They lie in our business culture, which cannot be changed within a decade.

    As John Litter said above, we either need proportional representation to ensure an industrial strategy that can go beyond electoral cycles (Germany), or we need a single party with a credible strategy to rule over several decades non-stop (this is the case of Japan).

    At least, during the next 5 years, you can improve British productivity massively just by doubling the level of robot usage in factories. British usage of automation technology in manufacturing is very low now, so there are plenty of rooms for big productivity rise by increasing robot usage. When doing so, you can also lower working hours, which will also positively affect workers’ productivity.

  • Palehorse – Do you know what are the oldest problems of British manufacturing? It is…the slow adoption of new technology and old infrastructures, and both of these dated back from the late 19th century. It was the Liberal Party that created the first strategy to solve them with the 1928 Yellow Book. The only problem thing was that this Yellow Book was never implemented. Now we need another Yellow Book.

    It must also go with banking reform, since firms will need sufficient financing to install new technology and equipment.

    An industrial strategy will be successful if we can get rid of picking winners. Also, after reading what you wrote about small modulars, now I believe that we should get rid of nuclear power altogether and go for wind, solar, biogas and tidal, rather than allowing the Chinese further control of our energy sector.
    But, going back to export discipline, I believe we can test Rolls-Royce by forcing them to export their small modular products, with a focus on regions with less corruption because a failed product can never gain a foothold without bribery.

    Another example of picking winner is BAE, which builds overpriced ships with dubious quality. An independent report points out that new ships should be built by other bidders to foster competition.

  • Thomas,
    All you say comes from good motives which I appreciate. My stance continues to be that the British have a big problem. They need to wake up to what they have become not cling to what they once were. This is the great turning point. LVT and industrial strategies all fall into place once a political movement emerges which is clear eyed and determined and visits the just consequences of failure on those who fail.
    Incidentally, export of small modular reactors is yet another claim which does not stand scrutiny. I know the proponents of these devices and have asked them “Name the countries”. There follows a mumbling noise in reply. Why? Because advanced countries with areas of high population density want big reactors. The little ones are suitable for poor countries with widely dispersed populations. So the proposal is to site these in remote areas? Really? Like Afghanistan?
    You do know what happens in a reactor? The element named after the planet Uranus captures a neutron. It then beta decays twice. Firstly becoming the element named after Neptune and then into the one named after Pluto. Are you really going to put a generator of this last element out in remote areas?
    Never be allowed.

  • Thomas,

    “Can you give me the estimate of the potential revenues that can be raised from LVT?”

    the IEA report on tax reform https://www.theguardian.com/money/2016/nov/02/institute-for-economic-affairs-report-abolish-20-taxes-income-tax-15-per-cent gives the following data on page 201:

    A detailed feasibility study ought to be commissioned, but there does not seem to be any fundamental reason why a location value tax could not be implemented by extending the process used by the Valuation Office Agency for business rates.
    National accounts valued total housing rental values at £226 billion in 2014, comprising £59 billion of actual rental payments and £166 billion of imputed values for owner-occupied housing. If we assume that one-third of this amount is the value of the
    location, this equates to an annual location value of housing at £74 billion. A tax that captured 75 per cent of that could raise £56 billion. Non-domestic property has been valued at £1.9 trillion.
    Assuming a location value yield of 5 per cent and a variety of location value assumptions depending on the type of property, perhaps £27 billion might be raised from offices, retail, infrastructure and other non-domestic property.

  • jayne Mansfield 4th Aug '17 - 10:05am

    @ Oliver Craven,
    The electorate have voted to leave the EU in what has been described by many as an act of monumental self-harm.

    You may find an article in the Guardian ( sorry link not working), but available online, interesting.

    ‘How Britain fell out of love with the free market’.

  • Palehorse – “My stance continues to be that the British have a big problem. They need to wake up to what they have become not cling to what they once were. This is the great turning point.”

    Thank you for putting it so succinctly.

    Thomas – Regrettably the slow adoption of new technology dates back much further than the late 19th century. I would say the rot set in around the time of Waterloo (1815) but only became clearly visible after the Great Exhibition (1851). Britain had achieved unchallenged superpower status and started coasting as its business model gradually morphed to rent extraction with the Empire as a captive market. Meanwhile other nations overtook us in developing a proper industrial infrastructure, particularly training in trade skills which Britain neglected – and shamefully still does.

    With the Empire gone, the UK’s business model again morphed, this time into domestically-targeted rent extraction – a.k.a. the City. The Tories may claim to be against “picking winners” but, by default, that is exactly what they have done, betting the farm on predatory finance. How’s that working out?

  • Gordon – I think I will have to blame Gladstone and his laissez-faire liberalism which dominated the latter half of the 19t h century.

    Actually, the trend did not accelerate until 1870, when the Long Depression occurred. The domstic industries were no longer profitable, and hence capitalists had to shift their money abroad. If Gladstone pursued an active interventionist policy, he would be able to keep domestic industries including new industries functioning. In this case, as capital remains in Britain, the lag therefore would have been mitigated. Chamberlain, who rejected laissez faire capitalism, would have taken a different approach.

  • Gordon – I also blame the transition to free trade for our decline. You know, during the first half of the 19th century, our heavy mercantilist policy allowed us to dominate the world. We even banned the export of technology and machinery, as well as technicians. Actually, the “export is good, import is bad” allowed us to dominate.

    Therefore, classical liberalism and Gladstonianism were the cause of the decline. Laissez faire liberalism also led to the failure of our synthetic dye industry, which was actually pioneered by a British scientist. Germany, thanks to its protectionist and infant industry policies, became a world leader in chemical industry.

    You see, protectionism wins in the long run.

    I support other aspects of liberalism, except for laissez faire and free trade. In this case, I agree with Joe Chamberlain.

    Palehorse – Perhaps the party and eventually the country should switch to the “export is good, import is bad” mindset. Although such mindset caused tragedies in Ireland, it allowed us as well as other countries to become industrial powers.
    For small modulars, maybe they can still be exported to suitable places, but the UK should switch to renewable energy from now. At least this move will prevent further Chinese involvement in our energy sector and infrastructures.

  • Thomas,
    I agree with much of what you say and, believe it or not, I am also in favour of an industrial strategy!
    But not until some very hard preliminary steps are taken first. My own dreams are “Decapitation” and “De-Victorianisation”. The first is the ruthless, savage removal of any and all senior failures from our public life and the second is a process of shocking the British into realising the brief period in which we were the richest country in the world is over and we need to reset our self awareness and beliefs.
    But I regard you as a kindred soul it’s just that before you plant potatoes in your vegetable garden you have to tackle the back breaking task of digging out a century of weeds first.

  • Neil Sandison 5th Aug '17 - 2:08pm

    The conservatives have the City and financial markets as their touchstone ,Labour has an outdated model of state ownership as the linchpin of their economic policy .Perhaps the Liberal Democrats should adopt the modular economy as our model. It is quick moving technically advances over shorter time periods than conventional heavy industry and is highly efficient in working in the circular economy where waste is not an option and you get full value from your raw material.
    Lets be the adaptable mammals for the new economics rather than like the two old parties holding on to historic dinosaurs of capital ,rent and ownership .

  • John Littler 5th Aug '17 - 3:29pm

    This is the best economics vision I have heard outlined by LibDems or anyone else, in some time. It does relate to the German/Scandinavian co-operative capitalist system, which for a similar country, such as Britain, does offer the best possible route and answers the public’s deep desire for change and a more hands on approach.

    The centre right orange book laissez faire economic vision has had it’s day and would be eclipsed by the Tories. Even they are retreating from it in terms of rhetoric at least.

  • Mat Rideley, author of the ‘The Rational Optimist uses some similar language/analogies to that in these last few comments when discussing Industrial Strategy http://www.rationaloptimist.com/blog/industrial-strategy/

    “..[Government].. needs to clear the drains of invasive roots, push the legal roadblocks aside and remove the parasites from the system.”

  • Oliver,

    I see from your blog that your proposed system for a basic income would give £68 a week to the parents of each child under 16, £128 a week to everyone aged over 16. This would be supplemented by a number of current benefits that would be maintained. This system has an estimated cost of £400 billion, with around half paid for with the abolition of most welfare spending and the rest paid for by tax increases.

    One of the major problems with these kind of proposal for tax increases and greater levels of redistribution is the impact of rent capture. We saw this with the introduction of working tax credits. Two things happen as disposable net incomes increase. More employers pay the minimum wage as net disposable income is supplemented by tax credits: and rent/housing costs increase as more income is chasing the inelastic supply of housing in places where there ate jobs.

    This article has proposals for similar levels of basic income and discusses some of the issues in the context of Land Value Tax https://medium.com/basic-income/why-land-value-tax-and-universal-basic-income-need-each-other-42ba999f7322.

    This is basically they same problem that Henry George wrote about. Living in San Francisco in the decades after the California gold strike he saw his hometown develop from a tented encapment around the harbour to a modern metropolis. Those that arrived first were able to acquire the prime urban locations and the fertile farmland that supplied the city. As new pioneers continued to arrive there was no more free or cheap land and within 30 years land rents had escalated a thousand fold to a point where a man working the fields or running a store would pay most of his profits out in rent, retaining only enough to subsist on. Over a few short years, San Francisco and the Pacific coast of the USA began to develop the same levels of poverty and destitution that were prevalent in New York and the East coast in the 19th century. Once the land grab was over, there was no great fortunes to be had by going West anymore than the streets of London were paved with gold.

    It is the rent extraction in the form of land rents and mortgages on land that is at the root of urban inequality. Until we bring that under control, any redistribution of incomes via taxes on labour or capital can be reclaimed by the owners and mortgagors of land and natural resources.

  • Joe Burke – I don’t agree with Ridley. Renewable energy prices can be higher currently, but 10 years later things could be different. Don’t repeat the mistake of the late 19th century: Britain was slow to convert from steam to electric power because the former was dirt cheap (in Britain) at that time. Likewise, Britain was also slow to change from Leblanc process to Solvay process due to similar reasons. Meanwhile, the USA supported electric power development until prices fell together with the learning process, and they reaped the benefits in full.

    For industrial energy prices for sectors like steel, we can run a flexible policy like Trudeau is doing with Alberta, to ease the transition. Energy taxes of all form should be reduced or removed, but only for businesses. The British Business Bank should be mobilized to support the installation of energy efficient tech.

    Scrap Hinkey as soon as possible, make it central in our manifesto if possible. Also scrap HS2 if possible. Instead, we should build more new roads and rails REGIONALLY and install digital traffic control system, especially in the North.

  • Thomas,

    I think Ridley is far to relaxed about climate change, but in a book called the rational optimist perhaps that is to be expected. He does however make some good points about the source of innovation, noting that few of the inventions that made the industrial revolution owed anything to scientific theory or government support. Cotton spinning and weaving was of no interest to scientists. The jennies, gins, frames, mules and looms that revolutionised the working of cotton were invented by tinkering businessmen not thinking boffins; by ‘hard heads and clever fingers’.
    Likewise of the four men who made the biggest advances in the steam engine – Thomas Newcomen, James Watt, Richard Trevithick and George Stephenson – three were utterly ignorant of scientific theories and Watt may not have been influenced by theory at all. It was they who made possible the theories of the vacuum and thermodynamics, not vice versa Top down science played little part in the early years of the industrial revolution.
    Even today what happens in the garages and cafes of Silicon Valley may be more important than what goes on in the labs of Stanford University.
    Scientists job is often to explain the empirical findings of technological tinkerers after they have discovered something. Most technological change comes from attempts to improve existing technology. It happens on the shop floor among apprentices and mechanicals, or in the workplace among the users of computer programs, and only rarely as a result of the application and transfer of knowledge from the ivory towers of intelligentsia.
    It was two bicycle repair men, the Wright Brothers, who invented not the well funded French Army that had been diligently working on the problem since the advent of air balloons.

  • Joeburke – Wrong. During the First Industrial Revolution, Britain intervened heavily by its crazy mercantilist policies (which were partly responsible for the Irish Famine). Our tariffs were far higher than France and German states before the Repeal of Corn Law (I always wish that it never happened), while the government even banned the export of technological blueprints and machinery.

    Regarding industrial policy, I tend to have my point of view shaped by the SECOND INDUSTRIAL REVOLUTION (1870-1914), as well as the East Asian Tigers. After unification in 1870, Germany heavily supported railway expansion, Ruhr boom and the Krupp family, as well as chemical research and education. The US under the Republican Party (at that time the liberal party in the US) also supported railway expansion (like the Transcontinental Railway), infrastructure development and technological development via National Bank and US Patent Office, as well as a 40% tariff (McKinley). They all had infant industry policies, and all support the expansion of higher technical education. During the 1840s-1860s, all other countries also tried to lure British technicians to work for them. Finally, France also achieved its post-ww2 economic miracle (surpassing Britain by 1970) via state indicative planning policies.

    Meanwhile, the lunatic Gladstonian liberals did absolutely nothing to support industrial development.

    Next, for Silicon Valley, do you know that the Internet was invented by the US military?

    But, you are actually correct that Japan and others could not plan tech garages like they did with heavy industries. But, again, manufacturing policy (we are talking about manufacturing/hardware) should be based on the experiences of the Second Industrial Revolution and the East Asian Tigers.

  • Thomas,

    government does innovate when there is military necessity from nuclear weapons to radar, satellite navigation and the internet but it also notorious for its ability to mis-read technical change.
    Ridley has written – In the 1980’s, European government bodies sponsored initiatives to push European Industry into the lead in the computer industry, They had names like Alvey, or Espirit or fifth-generation computing. They invariably picked losers and encouraged companies down cul-de-sacs, Mobile phones and search engines were not among their possible futures.
    In the US, there was a government initiative called Sematech based on the premise that the future lay in big companies making memory chips (that were increasingly made in Asia). This initiative poured $100 million into chip manufacturing on condition that the big companies stopped competing with each other and pooled their efforts to stay in what was fast becoming a commodity business. Even as late as 1988 dirigistes were still criticising the fragmented companies of Silicon Valley as ‘chronically entepreneurial’ and incapable of long-term investing. This was when Microsoft, Apple, Intel and (later) Dell, Cisco, Yahoo, Google and Facebook – chronically entrepreneurial all, in their garage or bedroom beginnings – were just laying the foundations for their global dominance at the expense of precisely the big companies dirigistes admired.
    During the late twentieth century, as companies sewed innovation into their culture and as industrial behemoths repeatedly fell prey to upstarts, most public-sector agencies trundled on as before oblivious to the fast-changing landscape opening up before them.

  • Joeburke – So, there is another solution. Allow fair competition, and give all the tech and manufacturing-related startups that are feasible (only idiots will support things like cafes or kebab kiosks) the same amount of support (technical/financial…) with no preferential treatment (of course after initial screening). Basically the government acts like a VC investor. As time goes on, many of them will fail/lag behind/have less successful performance…these firms will lose part or all of government support. Meanwhile, those who proved to be successful will receive more. This is not picking winners but weeding out losers. This is how Japan and S.Korea nurtured their steel, shipbuilding, car and electronic industries, they supported all new players equally without limiting barrier to entry, but then disciplined them based on export performance and weeded out less successful manufacturers.

    Government must always be involved heavily in basic research, infrastructures and education and training, as well as supporting the installation and adoption of new technology among businesses if the firms themselves cannot afford to do so alone. In some new industries where initial investment costs are too high, the government must provide funding.

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