Jonathan Saxty

The limits of a ‘free-market Brexit’

The limits of a 'free-market Brexit'
(Getty images)
Text settings

The UK must not be frightened of harnessing the power of the state as the country negotiates life after Brexit. Many people who remember the 1970s – a time when the British state seemed incapable of doing anything productive while the country suffered the indignity of going cap-in-hand to the IMF – often balk at such a suggestion. Many of the same people came of age in the 1980s, and associate the private sector with growth and opportunity, while the public sector was forever tainted with the stench of poor productivity, unemployment and power cuts. Yet this Anglo-centric view misses what was going on in the rest of the world at the time.

The economic revival of West Germany (the so-called ‘Wirtschaftswunder’), the economic miracle of Japan and the South Korean ‘Miracle on the Han River’ were all achieved with varying degrees of efficient government support. This was support which fostered innovation rather than protected failure. Even Singapore, often touted as a red-in-tooth-and-claw capitalist success story, got where it did – and stays where it does – through government involvement in the economy (the Singaporean state, for instance, owns vast amounts of infrastructure and assets throughout that country).

In Britain, the contrast was often made with Hong Kong, due to its status as a British colony, and emergence while Britain was declining. Hong Kong did appear to achieve success along Austrian School lines, but peer countries to Britain – for the most part – got where they did through efficient state support as well. If you want to see how this later manifested, consider how many UK privatised assets didn’t end up in the hands of private sector companies (least of all UK-domiciled ones), but in the hands of foreign government-owned corporations and sovereign wealth funds. We now have the absurd spectacle of much of the British transport and utilities sectors in the hands of foreign government-owned entities, because – guess what – in many countries it was and is government-owned entities which dominate transport and utilities ownership and management. Indeed, entrepreneurs can benefit from the stability of sound government ownership and management.

Think the Anglosphere is different? Think again. In that free market darling – the US – the state owns vast tracts of infrastructure (including transport infrastructure), the US government subsidises farmers (ditto Switzerland), while the US tech sector would be nothing without government support in the form of DARPA (the R&D arm of the Pentagon). In fact, looking around the world, a pattern is clear: virtually no country flogs off its airports or rail network (and, if they do, it is heavily controlled), many Western and East Asian governments retain ownership and control over public goods such as utilities, while often it is the state which catalyses growth technologies, making up for myopia and risk-aversion in much of the private sector. For Britain, ready to embark on its post-Brexit future and with the best higher education system on earth outside the US, this represents a huge opportunity, not least over how to reform its state aid rules.

Wolfgang Münchau, writing for The Spectator in April, cited Mancur Olson in suggesting the post-war economic success of Germany and Japan was in no small parts thanks to the destruction of established power relationships and industrial lobbies (which the UK suffered from post-war and which I certainly am not arguing for). Münchau suggests Brexit gives Britain the chance to remake how it helps new businesses, encouraging 'challengers, rather than protecting the incumbent'. He suggests 'there could be a fund that protects new venture capital-backed startups', something which isn’t banned under EU law but could become harder in the future.

In the post-war period, the British state was micromanaging and failed to foster innovation. But there clearly is a better way of doing things. Think of Channel 4. It is owned by the government but run at arms-length and on a commercial basis. This is exactly the model many governments around the world employ to own and operate vital sectors of their economy. The problem with British industry in the 60s and 70s was that nationalised industries were run top-down and micromanaged from Whitehall.

We know the state has a role – even the most ardent free-marketeers reject privatisation of the military – so let’s make it work for us. Don’t confuse this with a paean to high taxes and regulations. The proposals of Jeremy Corbyn’s Labour party would have taken us back to the three-day week. But other countries demonstrate a smart way to grow emerging game-changing technologies, retain strategic assets and ensure national security where necessary. Brexit affords the UK the chance to remake the state in a way which works for all of us.

Jonathan Saxty is assistant editor of Brexit Watch