Two fallacies: starmer’s growth and trump’s tariffs | thearticle

It’s no good. As we all know perfectly well from childhood, a house built on sand cannot stand.  Yet the economic models being currently  paraded – and followed  — on both sides of the

Atlantic as the bases for action, are clogged to the brim with the dirtiest of sand, and will, with absolute certainty, fall before very long. The American one has started to crumble

already. But we’ll start with Britain, where the damage is less (because we are smaller), but where the prevailing official government  objective,  economic and political,  has been

proclaimed so often that we know it by heart. It is that the Government is going to produce growth. That is the Prime Minister’s priority — indeed, so he sometimes says, his “only” priority

— and it is parroted obediently by large sections of the media, with the BBC in the lead. Of course, Sir Keir Starmer’s claim is utter nonsense, however many times it is asserted. National

governments  obviously have their essential role in sustaining the framework in which wealth can be created and expanded, not least their role in upholding the rule of law. Free markets

cannot work without that. But  these transactional supports have never been enough to switch on growth here, however defined. First and foremost, they cannot do so because most of the

drivers are just not within the control of open economies like Britain. The current global trade turmoil, the Russian assault on Ukraine, and the energy price explosion are all perfect

examples of that. Even when the international climate turns benign, for investment engines really to start whirring and purring, for output to grow and shared wealth with it, it has always

been the  risk-takers themselves, the innovators, the ingenious and sometimes the visionaries — qualities seldom found inside bureaucracies, departments of state or quangos — that inject and

feed the essential mood of creative optimism and ambition. This has to take hold both in the big corporation boardrooms and amongst the small and medium-sized enterprises  which make up the

overwhelming majority of modern economies — in the British case, 99.2 percent of all registered businesses.  Central planners constantly tend to forget this. In short, none of these parties

can do it alone: not the state, nor any particular sector, nor just “the market”  and the private sector, nor any part of it. Strong growth in an economy, more than ever in this totally

wired-up  computer age, needs collaboration of the most ingenious, flexible and resilient kind. It always has done so, but  now more than ever, as the entire economic process becomes ever

more of a giant tangle of global supply chains and services, more dense by far than ever before in world history, both  nationally and internationally. Politicians should never talk about

growth and economic prosperity as something they alone can magically switch on through the state. Here are some further reasons why. Government and its supporting machinery are simply not

designed or purposed to trigger the creativity and innovation out of which economic growth comes. They cannot do so because Government is accountable (now more than ever in the age of

transparency) to Parliament and the people and needs their taxes, as well as its own financial credibility, to govern at all – delivering the state’s side of  the national bargain between

government and governed by which nations exist. Governments can talk about growth and strategic commitment. But  it is long-term capital spending plans which always, but always, get cut back

to meet perceived short-term pressures. As the late Ernest Marples (the Conservative minister who introduced premium bonds, built the first motorway and oversaw the Beeching railway cuts)

used to repeat constantly: “In government, the urgent always drives out the important.” Even authoritarian societies are finding this to be so in the digital age. Why? Because, as noted, the

forces which determine growth  are now largely outside the control of any one country’s government or party. They are  external, largely outside domestic jurisdiction. This is because

powerful undercurrents, more powerful than any national  leader (including Trump — but see below), have taken over. The  microchip —  a single one with its billions of transistors — is

infinitely  stronger  than the demagogue or even the despot. Official phrases pumped into the public debate — “we are going to grow the economy” (as though it was some instant and edible

plant to be plucked from  the kitchen garden) or “take back control” — are just about the silliest, the most misleading and most dangerous slogans ever paraded before the British general

public and its sadly gullible media. In the global economy which has evolved in its present form out of the internet and the microchip in the last fifty years, government faces all the

infinite, continuous and changing demands which incoherent but ceaseless  populism generates. Politicians  may be the ones who want growth for their spending plans, and to retain popularity,

but it is the private sector and the market which have the money, know their own workforces and how to manage, reward and upskill them. Yet the new ideas and methods  for bringing them all

together in new and  much deeper and more genuine  forms of partnership  in the digital age, avoiding past pitfalls,  are curiously few and far between and little discussed.  Only one or two

practitioners have really begun to spell out new ways of advancing through this quagmire. (A good example is Phil Malem, CEO of +Impact, writing in a recent issue of the _New Statesman_).

While the overloaded state faces  the bulk of tasks and demands, piling in on one  another, from potholes to airports, from better  schools to faster trains, from safer streets to strong

national defences — it is private sector enterprises, large and small, that have the cash, the know-how and the modernised workforces. That is where growth comes from.  This is where the

unblocking solution to high level investment, in both public and private sectors begins. And it is where the critical challenge  lies and where the still prevailing half-baked binary

theories from an earlier age (state-or-market) are still doing most damage. Missing  are the flow of  investible projects and the safe returns to attract investors. The times cry out for new

types of partnership. Yet still the new thinking does not appear which Malem calls for. The green energy transition provides a classic example on the nuclear side. The obvious attractions

for private investors of fleets of small modular reactors, taking just two and a half years to fabricate on factory sites, are being ignored in favour of the giant GW  “replica reactor” at

Sizewell of the EPR Hinkley Point C design, now about to be given the go-ahead. This is a deplorable diversion,  which no genuinely commercial investor will touch with a bargepole. Under

this retrograde and deeply damaging  plan, the full (and massive) expense falls on a penniless Government, on the taxpayers who fund it, and on consumers, already paying some of the highest

electricity tariffs on the planet. Completion on the most optimistic estimate will  take 12-15 years minimum. Meanwhile, at least  two SMR suppliers guarantee  that they could have sets in

place, producing  clean low carbon current, by 2030. Indonesia plans to have one in full commercial operation by 2028. The key to a new and effective kind of collaboration of Government and

private sector  roles in growth lies in getting the small reactor  programme up and running now, right away. It is a key which has not yet found the right lock to turn in.  Until it is

found, claims that the State or the Government or the Prime Minister’s “mission” will produce growth are completely empty. The decision to push ahead with the outdated technology of Sizewell

C, a white elephant if ever there was one, is grimly clear confirmation of that. Some new thinking there has admittedly  been. For example, already some decades ago, to put an  end to

interminable  arguments in the  Thatcher and John Major cabinets, the  Private Finance Initiative (PFI) was developed. The idea was to combine private money with Government underwriting in

major public infrastructure projects, in ways which could be kept out of the Treasury accounts and avoid spooking  international lenders to the British Government. PFI worked well to start

with. It was wrecked by greedy hostility on both Government (Treasury) and the private developers’ sides and was stood down in 2018.  What helped kill it (and no doubt prevents its revival

now) was inflexible Treasury rulings. It could still play a central part in the financing of major public sector projects, which are so badly needed. The basic model was correct and  should

be both revised and expanded. But as long as Treasury Budget machinery is allowed to dominate the Government’s entire strategy,  little  will happen. MAKING AMERICA SMALL AGAIN Now let us

move from bogged down and fallacious British theory to even more questionable  and even more ill-conceived American economic debate and where it is  now leading. The official US  belief

system is, in shorthand, that tariffs on almost all imports will magically and speedily trigger  a mass of new and import-substituting industries and firms.  This will make America great

again, by re-creating  thousands of jobs lost to cheaper imports and by enlarging major areas of American industry via import substitution. In practice, in a real world far away from this

unstable kind of economic theory, rebuilding from scratch a new and enormous import-substitution sector will make America small again. The “protection” which economists advising the White

House propose will prove no protection at all. Like the British Government’s dream of growth-by-government, the Trump dream of vast new industries springing up to replace imports is an even

bigger pie well up in the blue sky. In reality it takes years to grow import substituting industries which can catch up. The “substitution” picture ignores the fact that _all_ competitive

industries have become an evolving amalgam of manufacturing and  services, fed by supply chains of impenetrable complexity which no government can untangle – not Donald Trump, not his

colleagues, JD Vance and Elon Musk, not anybody. Since the President read his last economic textbook half a century ago, the bulk of  the world’s productive processes  have been

internationalised. This is because the transmission of instructions and technological guidance has become costless and ubiquitous.  Find the “local” product that is drawing neither on parts

from another economy or services from another society to get its product to market. It does not exist. This relentless growth of supply chains could  only be stopped by  world warfare on

sea,  land and in  the air, of the kind deployed in 20th century conflicts. Tariffs will be a temporary blip, with the unstoppable flow of trade certain to find ways round. Houthi-type raids

  on trade routes can be more sudden, but will not last. Although the Ukraine war has a flavour of the trench warfare past, as fleets of drones push targeted troops back underground again

before they are picked off, the overriding message is that warfare  has changed and the linkages of trade and exchange can  be temporarily interrupted  but not   halted. In this scenario

Donald Trump is becoming  the  boy with his finger in the dyke. America is an inextricable part of a network world, but not the glittering saviour and leader of the West it once was. Even 

dollar dominance in trade transactions  may be changing, as the crypto jungle creeps forward. That America’s moment of primacy has passed and a network world has emerged seems to be

understood by everyone, including even the military, except the narrow Trump clique itself. European dominance is changing, too, as Asia rises. The EU is now only 14 percent of  global GDP.

In 2000 it was 34%. In 1990 it was in the forties. Soon Congress and the checks and balances of the legal system will arrive to halt the nonsense in the White House. Not so soon but

eventually,  common sense will return to America as well. The problem for administrators is that they have been given, by completely unstoppable technology, an entirely different framework

in which to fight, a different political axis along  which to battle  and confront  opponents. Left and right have gone, pulverised by those 11.5 billion chips and the march of technology

which has no political ideology of the old sort – or any sort. This means that the bulk of public policy-thinking is still set against the wrong enemy in  the  wrong century on the wrong

axis. Compared with the rest of a now multipolar world, we British  are  not alone, but we are certainly behind. The public-private dilemmas of maintaining a balanced society and a stable 

bargain between state and citizen have been faced elsewhere – and  resolved. Take Japan Central Railways, one of the biggest, fastest and safest rail networks in the world, which has long

occupied a subtle space  in the public-private spectrum. JCR is a private company, but owned by the state. Work that one out. The thinking about its status — finances, accountability, duties

etc – has evolved  over sixty years . Meanwhile our own experts and pundits have fallen back on “bipolar” concepts, with a return to state control at one extreme and demands for market

solutions at the other, which Adam Smith long ago pointed out as useless without strong  competition and would immediately congeal into tight monopolies. THE FATAL ISSUE: TIMING To repeat,

it all takes years.  Big investment to replace imports takes five to ten years of planning, research, design, construction, training , testing, production and marketing. The

import-substitution  industries to justify Trump’s “America First” ambition  are not attainable  because much bigger forces will push global trade and investment ahead, in  different

directions, in a different world of thought and long after he has gone. The intellectual theories, peddled by economists and taken up by populist heroes, that have become embedded in

national policy on both sides of the Atlantic, will prove to be both poison and paralysis. It will take a further major leap of the best intellects to  guide our societies back onto the

right pathways. Step forward, please, in both London and Washington, the philosophers of a new age. Listen to the practitioners, understand the real world problems and dilemmas and be silent

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