Has America Caught the British Disease?


As the economy stalls, analysts are worrying that the United States might repeat the experience of Japan’s “lost decade” (actually, two lost decades). Is America turning Japanese? We should be more worried about the prospect that America is turning British.

The United Kingdom went from creating the first industrial economy and establishing a global empire to lagging Italy by the 1970s. The neoliberal reforms of Thatcher and Blair, intended to modernize the economy, merely replaced a rotting manufacturing economy with an unstable rentier economy centered in the City of London. With a zombie economy characterized by industrial wastelands, off-limits aristocratic landholdings, tourist kitsch and a financial sector that choked on its own excesses, Tony Blair’s “Cool Britannia” looks more like “Ghoul Britannia.”

The decline of Britain was generations in the making, as Corelli Barnett has argued in his “The Pride and the Fall Books,” a series of polemics that include “The Audit of War” and “The Collapse of British Power.” The industrial strength that made the island nation the pioneer of the modern era was the result of unfashionable people – middle-class manufacturers – in the unfashionable industrial towns of the British midlands.

Unfortunately, Britain’s industrial revolution was not accompanied by a revolution in values that emphasized making things over inheriting things. The old elite of aristocratic parasites, Church of England drones, and their snobbish retainers like elite lawyers and professors despised upwardly mobile arrivistes, although their children and grand-children might become socially acceptable if they abandoned “trade” for the lifestyle of genteel rentiers and were laundered through public schools like Eton and Oxbridge. The equivalent of Germany’s technical high schools and polytechnics and America’s agricultural and mechanical colleges were (and are) sneered at in Britain as vulgar “redbrick” universities.

The failure to change Britain’s elite attitudes was accompanied by a failure to change Britain’s temporarily-successful free trade policies when they became anachronistic. From the Tudor era until the nineteenth century, the British state used mercantilist policies of the kind nowadays associated with the “East Asian model” – selective protectionism, subsidies to exporters, procurement, taxes on resource material exports to keep prices low. The American colonies, forbidden to manufacture anything and forced to supply the metropole with food and raw materials in return for high-value-added British manufactures, were part of the mercantilist system, like Scotland, Ireland and India.

By the 1840s, Britain’s technological supremacy allowed it to take off the protectionist training wheels and practice and preach free trade, confident that its manufactured exports would kill off infant industries in other countries. Beginning in the 1870s, however, the newly-united Germany and post-Civil War America adopted their own high-tariff policies of industry-supporting mercantilism. Despite the warnings of trade reformers like Joseph Chamberlain in the 1880s and 1890s, the British continued to practice one-way free trade, allowing German and American corporations based in their own giant, protected domestic markets to increase their shares of the market in Britain, its dominions and its colonies.

As British industry shrank under American and German competition, the City of London became even more important. Finance was a clean business, untainted by the grime and odor of the factory, and could be practiced by gentlemen. The British discovered too late that finance follows industry, as the epicenter of global banking migrated from London to New York during World War I.

Today the U.S. is repeating Britain’s mistakes. First the Japanese and now the Chinese have used a variety of methods, from nontariff barriers (Japan) to currency manipulation (both) to keep U.S. products out of their markets while enjoying unimpeded access to America’s consumer market, the biggest in the world. As in Britain, the center of gravity in the business world has shifted from manufacturing to finance. The catastrophic deregulation of the U.S. financial industry was based on the argument that unless the U.S. scrapped the New Deal era regulations that provided decades of financial stability and steady growth, Wall Street might lose out to the City of London or Hong Kong or Shanghai. For America’s bipartisan oligarchy, Wall Street is more important than Detroit.

Not content to re-enact the British cycle of deindustrialization and decline, the U.S. imports British pundits to lecture Americans on nineteenth-century free market ideology. Asking dogmatic British free marketers how to organize a successful economy in the twenty-first century is the equivalent of asking unreconstructed Japanese militarists how to run a successful foreign policy or asking Iranian mullahs how to create a world-class R&D sector.

Innovation without production is not the answer, as Britain’s sad history shows. Britain continued to have a world-class science and technology sector, inventing the jet engine and radar, among other things. But the British were unable to commercialize the products of British R&D because they lacked adequate mass production industries. Similarly, innovation will enrich few Americans other than technologists and venture capitalists if the new products that result are then licensed to be produced in industrial Asia or industrial Europe.

The irony is that, while the American colonists were right to rebel against their role of hewers of wood and drawers of water in the British Empire, the British mercantile system of the fifteenth through the nineteenth centuries was a great success story, producing not only temporary British supremacy but also modern technological civilization. The Germans, Japanese and Chinese have always practiced subtle and not-so-subtle versions of the technonationalism that Britain pursued before its misplaced confidence led it to adopt the free market ideology that accelerated its downfall. Modern America has more to learn from the pre-liberal, industrializing Britain of the seventeenth and eighteenth centuries that Adam Smith denounced than from the post-1840s Britain that sat nobly on its laurels as it sank beneath the waves it briefly ruled.

Michael Lind is Policy Director of the Economic Growth Program at the New America Foundation and author of The Next American Nation.

Photo by **Maurice**

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The British mistake

Michael Lind does not mention the Town and Country Planning Act 1947. The consequences of this, show where California and Oregon and Florida and the other Smart-Growth-mad jurisdictions are headed.

1) Land price bubbles are set off. A bubble and a crash has occurred every 12 to 16 years in Britain since 1947.

2) Build rates of new homes, lag far below what is needed for replacement of old dilapidated homes, let alone for population increase.

3) At no point, is there ever a housing construction "boom". Even during the peaks of the price bubble, "supply" falls well short of demographic requirements. Then during the "bust" phase, the build rates collapse to well below their already "too-low" levels of the bubble.

4) The shortage of homes only gets steadily worse. After 4 or so cycles, the shortage might be as high as 15 per cent; in Britain today, millions of homes. The floor space per person is the lowest in the OECD, below Japan. The average age of a first home buyer is 38 years.

5) Many first home buyers are bankrupted in every "bust" phase. Smarter first home buyers might wait for the "bust", this might take years. One problem with this is that the "bust" is accompanied by recession, high unemployment and tight credit.

6) Social alienation among the young, who cannot dream of home ownership, is high. Transient sexual relationships are incentivised by the impossibility of forming a normal family in one's own home. Bad habits are ingrained in most people during the many years of being "single" that is the new norm.

7) Social housing is costly to the taxpayer because of the cost of land even when the government is the buyer of it. Lengthy waiting lists for social housing, and political pressures related to this, are the norm. The numbers of people who require "social housing" is itself forced up by the inability of people to pay their own way in a normalised family lifestyle.

8) Employment potential in the building trades remains unrealised. Likewise no efficiencies of scale are achieved in the construction industry, which is marked by lifeboat ethics survivor strategy type thinking. Political favouritism and bureaucratic corruption become essential survival strategies for construction firms.

9) Small builders cannot exist. A few large monopolists are the only builders who can form and retain the necessary political and bureaucratic alliances, and sustain the costs of participation in the market, such as it is.

10) Massive windfalls are gained by a small minority of agricultural land owners as rezoning occurs in limited amounts. In California, 50-fold land value increases have been known; in Britain, the factor is HUNDREDS of times.

11) Even in regions with high unemployment for generations, house prices remain severely unaffordable, with social housing being the norm. Imagine Detroit with California house prices, and you will get the idea of what parts of England are like. House prices being able to adjust downwards are an essential part of renewing a region's economy; planned shortages remove this normal function of the market.

12) Patterns of investment in the economy are perpetually distorted.

13) The effect of monetary policy is distorted.

14) Workforce pay rates are subjected to continual pressures on account of the costs of living, leading to internationally uncompetitive industry. This is another reason why Texas is so much more attractive to employers than California. It is also a prime reason for Britain's loss of industry.

You get the idea........

Great Article

Fantastic article. The problem with "free trade" and offshoring and outsourcing your manufacturing base (along with the R&D associated with it) is that you don't really notice it until it is too late. Britain was still able to maintain its status as a first class manufacturer well into the 20th century. However, it simply never recovered after the 2nd World War. Now instead of manufacturing real wealth (steel, cars, washing machines, etc.), they manufacture derivatives. America is not too far behind either.

Modern day economists, along with many libertarians (CATO, Reason, etc.) have adopted this bizarre view that you can get rich by spending money (i.e. services based economy). It seems as if production and investment are viewed as no longer necessary to a healthy economy. In America, as well as Britain, we've offshored our manufacturing base and imported millions of unskilled immigrants to take these jobs. Just go to many of these communities in both America and Britain and see how this has turned out.....