British Economy Monitor #001
Cliffordism, large firms and the techno-financial nexus
The Morning Take
Against ‘Cliffordism’
There are hundreds of newsletters about the economy and business, so why add another one? The journey started with an influential essay Foundations which became popular by outlining the problems with the British economy as being driven by a broken planning system. I disagreed with much of it, particularly its interpretation of British economic history, but it did force me (and others) to think about what our alternative would be.
Foundations is a long read, but you can get a sense of what it’s all about from this speech by Matt Clifford at the spiritual home of Foundations, Looking for Growth. The speech has been widely shared and given much support on social media.
If this newsletter is about anything, it is about countering the simplistic ideas in this speech (and sympathetic essays) that have taken hold of our economic debate. This matters because if their ideas were implemented things would get worse. In honour of Matt’s eloquence (and he does deliver it well) I’ve christened this basket of mischief ‘Cliffordism’.
What is Cliffordism? I think there are two critical elements.
Stagnation is a choice
This is perhaps the silliest line in the speech but crystalises the world view that are circulating around much of the YIMBY right / Growth Studies left.
We are not growing, says its advocates, because we have chosen not to do so. We have decided to prioritise something else - equality, the environment, legal process etc - and growth has been deprioritised. If we will growth, it will come.
Now this would be news to anyone that has been observing British political and economic debate for the past thirty years. Politicians are endlessly looking for growth and talking about how important it is to get the country moving in the right direction.
The problem is we have made bad choices in pursuit of growth.
Deindustrialisation was an attempt to look for growth because policy makers believed that services were the future and industrial policy was inefficient. Environmentalism was pursued because policy makers believed that a global middle class of ethical consumers was emerging and Britain could be a world leader in these higher value exports. Legalism was embraced because policy makers believed that much of our strength lay in Britain being a bastion for legal stability underpinned by belief that we had the best lawyers and judges. We had to demonstrate our confidence in them by letting them do whatever they wanted and letting them dominate our economic (and political) system.
This is the hard truth. You do not get growth by just talking about it, you have to make the right choices consistently to create the conditions for success.
We have not failed to grow because of a lack of will. We have failed because politicians, business leaders, think tanks, commentators have put forward bad ideas that have not worked. We need a solid plan for growth, not simply plan to grow.
Plan not to have a plan
This links to the other central element of Cliffordism which is to rely on ‘exceptionalism’ (national, the heroic individual entrepreneur, technological genius etc.) to get us out of trouble.
It is true that every economy has its own natural strengths. It is true that Britain has been home to multiple industrial revolutions. However having confidence in our ability to succeed is not the same as just unleashing the animal spirits and trusting in something to turn up which is the plan that Cliffordites offer.
The Georgians had a plan. They used maritime power to capture key trade routes and commodities to pursue a mercantilist policy to corner the global market and extract wealth back to the home market. The Victorians and Edwardians had a plan. They wanted to use free trade to maximize gains made in the 18th Century and open up more global markets through use of imperial power and funnel a glut of UK savings into safer global financial investments. The post-war economy was built on maintaining the UK at the technological frontier (both physical and human capital) through state-direction and demand management. The Thatcherites and Blairites had a plan etc. etc.
What is our current plan? Cheap energy, to make what or do what? New housing, to house what? Free trade, to sell what? Cliffordism confuses the results of wealth (having stuff) with the cause. You make stuff to do stuff, but what we are trying to do?
The get out of jail card deployed is always just “take care of the foundations and the rest will take care of itself”. If only this was true. The foundations are only as good as the strategy that you deploy to maximise them.
So in essence, this monitor is against Cliffordism.
It is for those interested in what is actually going on, not vibes. It is about embracing a new economic realism and developing a coherent economic strategy. It is about difficult choices, not easy slogans.
If you want to take part in this debate, the British Economy Monitor is for you.
It’s all connected
Rather than just listing a load of stories to read, I thought it would be useful to show the connections between various stories and how the highlight key economic challenges.
Today’s connections are from the FT. The UK minimum wage is closing in on graduate starting salaries as UK small businesses are struggling to take advantage of new trade deals and wealthy UK investors shift to investing more in offshore bonds.
The link between these stories is the failure of the UK to grow enough large firms.
One of the most damaging trends in the UK economy since 1979 has been the diminishing proportion of economic output and employment output from large businesses. Large businesses require deep pools of capital and supportive trade policies to win market share (just see the way the Trump Administration is backing US tech).
In the post-war period, levels of self-employment and employment by small firms diminished significantly as the UK sought to build globally competitive large firms but we turned our back on this strategy in the 1980s because it required ‘expensive’ industrial policies. The composition of firms matters because we know that larger firms pay more and export more. Trying to bank on small firms to be an engine for exports is not a viable strategy, but the UK economic debate is dominated by small business and firms. It becomes a self-fulfilling cycle where the more we focus on small businesses, the more important they become as a source of employment and the harder it becomes to shift back towards larger firms.
We have struggled to grow these large firms for a number of reasons, but one of the biggest challenges has been raising enough domestic capital (hence the current debate on the merits of a so-called British ISA). Until we find a way of challenging more of our own money into creating large firms that can export, wages will continue to be squeezed and productivity will be lower than it should be. This will not happen organically, as returns in other markets are often higher than those at home, so we need a plan.
Morning must read
Sorry, another FT (£) story - London becomes a ‘quant’ powerhouse as traders rake in revenues.
One of the biggest risks facing the UK economy is people continuing to confuse wealth (i.e. how much something is valued or how much you earn from something) with success. There are a lot of ways that you can generate wealth in the economy, but that does not necessarily mean that they are good long term. The growing influence of techno-financial nexus in the UK economy, with ‘fin-tech’, quant traders, crypto kings etc. is an example of how we have chased wealth at the expense of our economic fundamentals.