- Labour’s green revolution looks an attractive idea
- It is not going to ‘level up’ UK into carbon-free manufacturing hub
- ‘Key’ to powering up growth is structural reform and economic liberalisation
There is a confidence among US Democrats and Britain’s Labour Party that the way forward for prosperity is the restoration of good manufacturing jobs.
Yet as is being seen at British Steel in Scunthorpe and soon at Tata in Port Talbot, the replacement of blast furnaces by cleaner, modern electric arc production leads to job losses. And as British champions, such as Rolls-Royce, add AI and process engineering to their toolbox, there are likely to be fewer – rather than more – jobs.
The more sophisticated and prosperous Western economies become, the less attractive making things becomes. The US has tended toward protectionism, fearing Chinese manufacturing imperialism.
But reversing historic trends which saw industrial jobs flee Western countries for China, Asia and Latin America will be almost impossible to reverse on any scale. Nations which have bet heavily on manufacturing above all else, such as Germany and Japan, may have accumulated huge foreign exchange reserves but have condemned themselves to slow growth.
Meanwhile, countless fintech firms and banks are making their way to London. Buy now pay later start-up Klarna changed its registration to the UK. Revolut, with 300m customers worldwide, is seeking a UK banking licence. Starling is after a London listing and JP Morgan has chosen the UK as the home of its European digital bank Chase.
Double act: Shadow Chancellor Rachel Reeves with Labour Leader Sir Keir Starmer
When Labour’s would-be chancellor Rachel Reeves visited the US in May, she was bowled over by the ambition of Bidenomics. The Inflation Reduction Act (IRA), at a cost of $740billion (£612billion), was seen by Washington as luring climate change investment and healthcare to the US through subsidies. Yet the biggest deals done in the US this year have been in fossil fuels, with oil majors Exxon and Chevron doubling down.
In the past week, Britain’s most valuable company AstraZeneca announced that it was investing up to $2billion in developing a diet drug in China, not the US.
Labour’s great green revolution, with the pledge to build up to £28billion a year from the middle of the next Parliament, looks an attractive idea. But the conviction that it is going to ‘level up’ the UK into a carbon-free manufacturing hub is fantasy land.
What counts for energy investment is decent returns. That is why BP recently received a $540m (£446m) black eye on offshore wind power in New York. A senior executive declared the industry ‘fundamentally broken’. Sweden’s Vattenfall disclosed in July that it was halting plans for its Norfolk Boreas offshore wind project. The economics made little sense.
The danger must be that the attempt at reviving manufacturing in the UK will end up like the failures of the 1970s, designed to release the ‘white heat’ of technology. All it unleashed was the mess of British Leyland.
So far, the IRA is doing nothing to reshape the US’s economic or political landscape. Polling for the New York Times shows that in five key Rust Belt states, needed to ensure victory in the next presidential election, Donald Trump’s mercantilism is preferred to Bidenomics. The Economist magazine notes the most recent jump in American GDP has nothing to do with a manufacturing renaissance and was largely down to the service sector. In fact, manufacturing productivity is declining in spite of subsidies.
US research suggests that the key to powering up growth is not green subsidies but structural reform (shrinking the size of the state) and economic liberalisation.
The post-Brexit vision of global Britain may not be so stupid after all.