There is no doubt about it: the world is undergoing a seismic paradigm shift. After the implosion of the banking sector in 2008, it was perhaps inevitable that the 30-year period of relatively laissez-faire economic management would come to an end. But what followed has been little better. It is only now that the drug of cheap money – injected to ameliorate the symptoms of the banking collapse – is being withdrawn that we can see the scale of the dangers facing Western economies.
Contrary to the hopes of some on the Left, the revival of state interventionism since the crisis has neither stabilised nor boosted the economies of rich countries. Instead, we have witnessed the strengthening of a powerful “market-industrial complex”, as big government and big banks continue to feed off each other. In recent days, we have seen how disastrous state policy (like printing too much money) can create the need for a government-guided mega-bank merger, which creates a need for more state support.
Ultimately, the only thing that can break this cycle is cultivating dynamic economies that are not so toxically over-reliant on financial services or ultra-easy monetary policy for growth. But achieving this will be far from straightforward. That is because the West faces a troubling predicament.
We are told that this is a golden age for technology and innovation. The truth, however, is that we have been languishing in a technological slowdown for the best part of 50 years. Despite the dawn of the computing age, we are stuck in the shadow of the “special century” which, from 1870 to 1970, heralded a wave of life-transforming breakthroughs, from antibiotics and plumbing to motor vehicles and the white goods. Big leaps in AI and robotics may elude us until further breakthroughs are made in first principles and basic science. In the meantime, as we fail to innovate, we are also failing to boost productivity. Wages have flatlined, fuelling populism and emboldening far-Left militants.
I sympathise with free marketeers who balk at remedies that stray much beyond slashing taxes and red tape. But the old solutions are not going to be enough this time. The amount of technological progress springing from spontaneous human inventiveness rather than more methodical scientific research and development seems to be slowing. And yet science breakthroughs in turn are becoming harder to achieve as it appears that we require more and more knowledge to make new discoveries of a given size. That demands more manpower. And that demands more funding for science.
Geopolitical and global instability could, ironically, help us out of our hole – opening up new frontiers in technology and science, as well as creating opportunities in advanced manufacturing as countries onshore strategic industries from the factories of Asia. But countries will only benefit if they are intentional about seizing the moment with national plans. This is exactly what the US is attempting to do. The canary in the coal mine is the Midwestern rust belt, where government cash and incentives have resulted in the sprouting of multibillion-dollar semiconductor factories and electric vehicle clusters in places hitherto known only for depression. Once the graveyard of American automotive and steel, the Midwest is emerging, as a direct result of government vision, as a new El Dorado for the bold, the rich and the mad – not just big-hitters like Intel and Ford, but garage robotics startups and wacky inventors. On a recent visit, I encountered an engineer who is hoping to do to aviation what the internet did to communication, building a flight network of decentralised orbs.
It could all go horribly wrong. But for now, the virtuous cycles emerging in the rust belt – with state money spurring entrepreneurialism and experimentation – are a heartening contrast to the vicious cycles of casino capitalism and big state meddling that plague this current economic juncture. Not least because rust belt towns from Grand Rapids to South Bend have an impressive experience of what state intervention works (infrastructure projects, developing synergies between basic and applied research) and what flops (politicians trying to pick winners).
It feels like a historic moment: in places like Dayton, Ohio, where a tight-knit group of early 20th-century inventors created an “idea factory” which gave rise to the modern ignition system, charismatic and energetic networks of talent are emerging once again. Potentially even more exciting is Joe Biden’s interest in replicating Darpa – the defence innovation agency that famously invented the entire internet ecosystem – in other sectors. The risk is the UK is left behind. Given that innovation will hinge on basic science breakthroughs, and this happens to be one of the UK’s greatest strengths, it is jaw-dropping that British science funding still trails competitors like Germany. It is equally discouraging that a UK “Darpa” in the pipeline looks set to be stillborn, hobbled by a lack of independence as well as stingy funding. Moreover, the blob’s inertia when it comes to boosting advanced manufacturing in strategic sectors is risible. Even as UK semiconductor bosses threaten to move overseas as competition hots up, Rishi Sunak’s plan for the sector proves unforthcoming. Infrastructure and levelling up plans are in disarray.
Notwithstanding the Government’s recent forays into science and tech policy, perhaps most concerning of all is that much of this stuff simply isn’t on the agenda for mainstream political discussion. That the recent Budget was dominated by a storm in a teacup over a pensions tax break for doctors was depressingly typical. And while the Tory party likes to babble about transforming the UK into a high-wage and low-migration economy, it has provided little vision of how it intends to get there.
But here’s the thing: capitalism can only get us out of this rut if we come up with the vision. The Agricultural Revolution was spurred by a spiritual belief in “improvement” and creating abundant new Gardens of Eden on earth. The industrial age was propelled by a devotion to scientific “useful knowledge” with Puritan roots. Mass manufacturing would not have happened had it not been for the vision of people like Henry Ford. Only similar inspiration can save us from our current imbroglio and drive us to a new golden age of advanced innovation.
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