We see Britain as a world-class economy. We better think about Taiwan | Larry Elliot

Iinflation is at its highest in 40 years. Food bills are skyrocketing. Retirees are so afraid of rising energy costs that they put off turning on their central heating. There are “tempting” cuts in public spending and tax increases to come. But too bad. Everything will be fine now that the adults are back in charge.

Jeremy Hunt was at his emollient best on his Commons debut this week. The government has learned the hard way that you get rid of orthodoxy at your peril. The Abacus economy – ridiculed by Liz Truss during her leadership bid – is essential if the UK is to capitalize on its fundamental strengths.

For now, admitted the new Chancellor, it was impossible to avoid decisions of breathtaking difficulty, but in the long term the future looked bright. Hunt then launched into a familiar riff, listing everything Britain had going for it, provided it swallowed its final dose of austerity medicine: three of the world’s top 10 universities; a global financial sector; “incredible strength” in creative industries, science, engineering, manufacturing and innovation.

To which there are several things to say. The first is that the record for doing things the orthodox way has been quite abysmal in the 15 years since the global financial crisis. Real wages barely rose, investment was weak, public finances were never straightened out, and Britain’s trade deficit hit new records. Truss was wrong about a lot of things, but his basic criticism was right: the UK economic model doesn’t work.

And while Hunt is right to point out the things Britain does well, he really only looks at the asset side of the balance sheet. The flow side makes the reading much darker. Britain depends on foreign investors to finance its huge budget and trade deficit; the NHS is in a permanent state of crisis; a lack of critical energy infrastructure means the lights may well go out this winter; trust in the police to investigate crimes such as burglaries is at an all-time low; the transportation system is dilapidated.

The economy relies on speculative money circulating in the City of London to finance the trade deficit and keep the housing market booming. It works for a wealthy elite, living in London and the South East of England, but not for the general population. Inequalities are high and there has been a rapid expansion of the informal labor market, where work is sporadic and poorly paid. All of these characteristics are those of a struggling developing or emerging market economy, rather than a first-tier nation.

Moreover, it is difficult to see how the new era of austerity will improve matters. There will be less money to upgrade infrastructure and more cuts to already cash-strapped police forces, courts and prisons. Treasury-imposed wage restrictions in the public sector will accelerate the loss of personnel to the private sector, while the highest tax levies in more than 70 years will discourage private investment. It will be harder for people to move around the country, but easier for them to fall into poverty. There are good reasons for the state to protect its citizens from an external inflationary shock, but this support will only last six months. Raising taxes and cutting spending during a recession will deepen and prolong the recession.

Truss’ botched experiment represents a setback for any new thinking, and it’s a depressing prospect. The perpetuation of the abacus economy may keep financial markets quiet for a while, but what rule by technocrats like Hunt really delivers is controlled decline. The only sustainable way to have healthy public finances is to improve the performance of the economy.

It is not, as some fondly imagine, simply reversing Brexit. Since the 2016 referendum, the UK’s growth has been nothing out of the ordinary, but it has been faster than that of Italy and Germany, and barely less than that of France.

One way forward would be to rethink the UK as an emerging market economy, aiming to emulate the success of a country like Taiwan, which makes 65% of the world’s semiconductors and 90% of its chips. advances.

There are several steps in this process. The first step is to admit that the UK is not a global economy, and has been for some time. The second step is to reflect: a sustained commitment to improving education and skills. The third step is to develop developing sectors that will provide the goods and services needed to boost exports, reduce the trade deficit and make the economy less dependent on the financial sector.

Assuming they survive Hunt’s axe, Truss Investment Zones – areas that will benefit from tax incentives and planning deregulation – are a possible route for construction. This is the model that led to the development of Canary Wharf, home to much of the financial sector, on reclaimed land in London’s Docklands.

An alternative would involve a national development plan designed to nurture the industries and services of the future. East Asian Tiger economies have used the full range of measures at their disposal, including taxation, public procurement, public ownership, state aid, infant industry support and capital controls .

Governments here were wary of activist economic strategies, largely because they thought the UK’s problems were minor and transitory. It is becoming increasingly clear that no.

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