This article concludes a three-part series on what the UK needs to do to manage ‘beneficial growth’ policy across government. This article briefly considers examples in banking, trade, commercial law and infrastructure.

De Jure Monopoly Banking – ‘Never a lender or borrower be’

A purposefully restrictive banking sector, dogged by regulatory capture, has done much to inhibit the UK economy. The monopolistic sector structure was designed to create high profitability and crisis resilience in the UK banking sector; but the 2008 crash did not change this justification! In effect the sector’s self-governed, cartelised approach, with multiple regulators, failed. Instead of reform, a permissive approach to ‘accounting tricks’ transpired. The remedies proved to be very profitable.

The sector thus remains largely unreformed. The dysfunctional UK banking sector has relatively few banks, absence of specialist banks, and weird over-extended anti-customer rules. The UK suffers unresponsive services, instability, lack of competition, and reliance on the taxpayer as a last resort. Over-dependence on derivatives and property lending means they hardly ever lend for real-world business development. Remedies include more effective prudential regulation, and a raft of measures to increase competition; for example, a regulatory path from small (eg credit unions) to large, among many steps to eliminate the protections afforded the big banks from smaller competitors.

Trade policy, promotion and facilitation – ‘The expert manufacture of bottlenecks’

There are three critical problems in UK trade policy. First, post-Brexit, the UK is notoriously bad at matching UK tariff demands with evolving strengths and weaknesses in the UK economy.

Second, the UK system of business promotion globally is amateurish compared to (for example), Japan, South Korea, Finland or the USA. Japanese sectoral development associations, global technology organisations such as JETRO, and the role of METI in supporting overseas manufacturing, are worth copying.

Third, trade facilitation within the UK is sclerotic. Consider international freight rail transport from London Gateway to the North, or the Liverpool-Manchester-Leeds-Hull route, (and the permanent gridlock in S.E. Kent). The aims of trade reforms can be clearly stated.

Commercial Law – ‘Labyrinthine and outdated’

Commercial law has four clear primary aims. First to create a legal framework for ‘collective endeavour’; to achieve things no one individual can alone. Second, to provide a stable and enforceable basis for transactions. Third, to help pursue accountability and alignment with the public interest. That is, to ensure transparency, and prevent dis-beneficial practices such as monopoly, cartelisation or trickery. Fourth, to provide a fair basis for economic activity as an asset; financing, equity trading, and investment.

In the UK these functions clearly do not work well. Opaque ownership, share price manipulation, investment fund fraud, endemic cartelisation (especially via large holdings in competing companies), and inflexible types of legal entity, all badly need addressing. For small businesses, companies avoiding accountability by closing and re-starting, and easily circumventing minimum wage rules, need addressing. The structure of legal entities (and their tax treatment) is a major area of reform, eg the rules for profit-sharing companies or fully participative governance.

Infrastructure, Decentralisation and Planning – ‘The Cui bono problem’

The primary problem in infrastructure investment in the UK is its centralised financing but with local ‘veto’. Most costs of investment are shouldered by the central state, but local authorities have to address downsides with the local public, without the power to negotiate changes to plans to meet local objections.

The fiscal benefits of the investments are felt by parts of central government, but detached from the costs. Spending proposals sit in piles on desks in Whitehall, waiting years, and are the first types of spending to be cut when there is a fiscal squeeze. This problem cannot be solved without fiscal decentralisation (local taxes) where the local/regional government investor can use local return-on-investment criteria in prioritisation.

There are many other areas of reform needed (outside of macro-fiscal policy) in order to purse ‘beneficial economic growth’.

As UK economic decline accelerates, and the options narrow, a systematic emphasis on the sources of growth, and the associated problems … and remedies … to be addressed, is long overdue. Just a brief flypast some of the issues in these three articles, suggests a need for institutional reform, especially in pan-governmental orchestration, given all the interdependencies. There are many international lessons to be learned.

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance.