System Failure

Can democracy survive in a world of extreme technological risk and rising political violence?

Towering Columns

At UnHerd, J.D. Vance argues that libertarianism does not take account of the contexts in which humans live or how political choices affect their life chances.

I want to tell a story, one of the most heartbreaking stories I’ve heard since my book came out. A woman I met in southeastern Ohio — which is really ground zero for the opioid problem and so many other social problems that all of us care about in this country — was telling me about a young patient she had who had become addicted to opioids. He was eight years old and he was already addicted to Percocets. The way that this kid became addicted to opioids is that he would do drug runs for his family. Because they didn’t have a lot of money, if he made a successful drug run, they would actually give him a Percocet as a reward. That was how this kid, at the tender age of eight, became addicted to opioids…I think there’s a tendency in our politics on the right to look at this kid and say ‘You know, it’s a tragedy what’s happened to him, but it’s fundamentally a tragedy that political power can’t touch. Parents need to make better decisions. This child, God willing, needs to make better decision when he grows up.’

I think that ignores the way in which human beings actually live their lives – the cultural, economic, and environmental contexts in which this kid grows up. It ignores the fact that this kid lives in a community that has too few spare dollars to spend and too many spare opioids. That is a political problem. That is something that we decided to do using political power. We allowed commercial actors to sell these drugs in our communities. We allowed our regulatory state to approve these drugs and to do nothing when it was very clear that these substances were starting to affect our communities. That was a political choice and political power can actually fix it.

That kid lives in a community where even if he makes good choices later on in life, he lives in a place where there are virtually no good jobs for a kid of his educational status and his social class. If he wants to earn a decent wage, if he wants to work at a good job, those jobs in his community have largely gone overseas thanks to forces of globalisation that we unleashed because of political choices. We made the choice that we wanted that kid to be able to buy cheaper consumer goods at Walmart instead of having access to a good job. And maybe that was a defensible choice – I don’t think it was– but it was a choice and we have to stop pretending that it wasn’t.

Also at UnHerd, Peter Hurst says it’s inconsistent for Labour to forge ahead with plans to ban smoking while moving towards legalisation of cannabis.

The wider progressive political movement, of which the Labour Party forms a part, is acting inconsistently on the issue of smoking in general. The Liberal Democrats, for instance, support smoking bans when it comes to tobacco, but legalisation when it comes to cannabis. What explains this clear and obvious inconsistent approach to smoking by progressives?

The answer is ideological. As drug policy experts Keith Humphreys and Wayne Hall explain, in a number of countries cannabis use has traditionally been associated with Left-wing grassroots activism. As such, Left-leaning parties are typically more sympathetic. That is in spite of the fact that, in the United States and Canada, the “industry is run by business executives with law degrees and MBAs who are adopting the business practices of the tobacco and alcohol industries,” they write.

Tobacco is implicitly Right-coded due to its associations with consumerism, advertising, mass marketing, sponsorship, and the unacceptable face of capitalism in the form of Big Tobacco. Cannabis is implicitly Left-coded due to its associations with underdog/outsider groups such as hippies and Rastafarians. The inconsistent approach to smoking taken by progressives — such as Lib Dem Deputy Leader Daisy Cooper — isn’t based on a substantive and objective assessment of harms or a deep understanding of the issues involved….The irony is that cannabis commercialisation would inevitably lead to a reproduced form of Big Tobacco — not least because Big Tobacco is one of the biggest investors in nascent legalised cannabis markets — with all the same attendant issues.

In The Telegraph, Guy Dampier says mass immigration cannot solve Britain’s economic or demographic problems.

This excess of labour, which is entirely the result of government decisions to keep levels of legal immigration high, has warped the economy. Rather than invest in automation, which would deliver more productivity and therefore more growth, we’ve seen Britain fall behind our international competitors in adopting industrial robots. Famously, automatic car washes have decreased in number since the 2000s, being replaced by hand washes manned by migrants…In addition, all of these people have placed greater stress on our infrastructure. We haven’t built a new reservoir since the 1990s, while we’ve added millions of new people. As a result, we get hosepipe bans every year and the sewage system has to flush waste into rivers when the Victorian piping can’t handle the scale of usage. The same is true across roads, railways, hospitals, dental clinics and much more. No amount of investment can match the increase in population driven by immigration…

…Immigration is sometimes touted as a solution [to our ageing population and low birth rate]. If British people won’t have babies then we need foreigners to keep the economy going. The issue is that not all workers are alike. There is now academic literature showing that workers from Western countries, like Japan or America, are a net fiscal benefit but that non-Western workers are a net fiscal negative. Unfortunately the latter make up the vast majority of those coming here to work. 

There’s also no way that immigrants can solve the demographic crisis, as they too will get old and need care. In fact, they probably make it worse: too many immigrants are a major reason for our sky-high property prices, which make it hard for young people to buy a house and have children. If more than half your income goes on rent, there isn’t much left for raising a family…So to manage the strain we need both a sharp reduction in immigration and record-breaking expansion of our infrastructure, including housing. That doesn’t mean all immigration needs to cease. We know that some migrants really do add to our society – but they make up only a few tens of thousands of the millions coming here. By setting a high income requirement to come here, ending exemptions, and shutting down other routes in, we could achieve this. 

In The Telegraph, Ambrose Evans-Pritchard says Labour will never break free of the UK’s self-imposed fiscal straightjacket if it continues to empower the OBR.

The failings of our fiscal regime are by now well-known. It encourages pro-cyclical tightening during economic downturns and pro-cyclical loosening during upturns. It smacks of the household fallacy, treating an organic economy almost as if it were a family budget. It ignores the state balance sheet. You would hardly know that the UK’s public sector net worth turned negative when the OBR set up shop in 2010, deteriorating to minus £614bn last year. It scores the debt side of the ledger but not the assets on the other side. If Labour builds council houses under this accounting lunacy, it will be castigated for increasing debt rather than commended for creating state wealth.

The OBR model assumes that public investment crowds out private investment. That flatly contradicts the whole thrust of Ms Reeves’s growth strategy, which is to use public funds as seed money to leverage three times as much private money. If the OBR persists with its indefensible position, it will deny Labour the fiscal headroom needed to carry out its election manifesto. 

One can understand why the Chancellor is loath to change the fiscal rule. Britain is already on its ninth version since 2009, the lowest life expectancy for a fiscal rule among 35 countries analysed by the OECD. New Zealand’s variant has stood unchanged since 1994. But she now seems intent on creating fresh headaches by giving the OBR enhanced legal powers. This will lead to trouble unless the OBR itself is overhauled. The central failing of the OBR has been to assume a very low fiscal multiplier in its forecasting model, greatly understating the damage done to the economy from cuts to public spending during the post-Lehman depression when there was ample spare capacity. 

In the New Statesman, Helen Thompson says Labour’s net zero plans ignore the inherent relationship between energy, global trade and financial markets.

Whatever the follies of Kwarteng and Truss, their fall exposed a structural vulnerability in the British economy to crisis dating from 2004, when Britain became a net importer of energy. Britain does not export enough goods to service its rising energy imports, required because of declining North Sea production. At times of financial market turbulence, the ensuing trade deficit risks a fall in sterling, making dollar-priced energy imports more expensive. In the last year of Britain being a net energy exporter, the current-account deficit was 1.8 per cent of GDP and sterling started 2004 at around $1.80. When the Truss shock hit, the current-account deficit had widened to 4 per cent and sterling had fallen to $1.07. While sterling has recovered from that nadir, it still has only briefly touched $1.30 again. 

The Labour leadership will argue that the answer is growth and using the energy transition to boost exports. During the election campaign, Ed Miliband, now the Secretary of State for Energy and Net Zero, proclaimed, “The offshore wind industry is the beating heart of our mission to make Britain a clean-energy superpower.” But there will be no electricity-exporting superpowers in the way that Saudi Arabia, Russia and the US are fossil-fuel superpowers, because electricity cannot be distributed across oceans. 

Far from being behind the curve on wind, Britain is already a pace-setter. It has the largest offshore-wind capacity in the world, and opened the first ever floating wind farm, off the Aberdeenshire coast in 2017. At the end of 2023 and the start of 2024, renewable electricity, mostly from wind, hit record levels – more than half of the total UK electricity generation. Yet this success has not translated into any kind of industrial or macroeconomic reward: there is not one UK company in the top-20 wind turbine manufacturers in the world, and in the first quarter of 2024 net electricity imports were higher than ever. Rather than being the basis of an exporting renaissance, a large wind sector locks Britain into a set of hourly trade interdependencies with other European countries to provide electricity when the wind does not blow. Allowing for onshore wind, as Labour now has, cannot change that fact. 

In embracing net-zero-led growth to reindustrialise Britain and rejuvenate the east coast, Labour is making the same wishful bet Johnson placed in 2019. The symbol of the Tories’ failed ambitions came in January 2023, when the government-backed battery start-up Britishvolt, which had planned to build a gigafactory in Blyth, went into administration. Quite simply, the energy-driven inflation of 2021-22 ended the favourable monetary environment in which Britain’s net zero policies were formulated in 2019. From servicing debt to building materials, costs are now higher. Even the world’s largest offshore wind turbine manufacturer, the majority state-owned Danish company Ørsted, has announced plans to shed jobs and cancel two large-scale offshore wind projects in the US. 

Finally on UnHerd, American Compass director Oren Cass explains the underlying philosophy of J.D. Vance and the rise of the “New Right”, which rejects conservatives’ traditional devotion to free trade, corporate tax cuts and globalisation.

Wonky Thinking

The Institute for Innovation and Public Purpose published Mission-Oriented Industrial Strategy: Global Insights by Mariana Mazzucato, Sarah Doyle and Luca Kuehn von Burgsdorff. The report argues for governments to think of themselves as market shapers rather than mere correctors of market failure, focused on achieving national economic goals.

The greatest challenges facing the world today – from global warming and health pandemics, to growing inequality, and inequitable access to decent housing – are direct results of how we choose to design our economies. Overcoming these challenges will require a fundamentally different approach to economic policy that proactively steers economic activity to be sustainable and inclusive, while leaving open the many bottom-up solutions required. How this direction is set, implemented, and governed among all economic actors is the focus of this report.

These questions are more important than ever, now that industrial strategy – actions taken by a state to shape how an economy is structured and how it grows – has moved back into the mainstream. Governments around the world are explicitly rolling out industrial strategies with billions of dollars of funding directed towards promoting productivity, job creation, competitiveness, economic resilience and growth. Many governments are also seeking to link these investments to a “just green transition”. However, in so doing they often revert to old models of industrial strategy that focus on picking specific sectors or technologies to receive government support. These models have been criticised for “picking winners”, with far too little attention being paid to the public return on public investments. The models are not fit for 21st-century challenges, which are cross-cutting. Responding to the climate crisis, for example, is not just about renewable energy; it must include transforming how we move (sustainable mobility), how we build (green infrastructure) and how we eat (sustainable food). Similarly, responding to health crises is not just about pharmaceuticals, but about a wide array of innovation and action across policy areas and sectors. From a policy perspective, this requires inter-ministerial thinking. From a business perspective, it must involve all sectors, not the chosen few.

To ensure that the benefits of growth are distributed equitably and directed sustainably, it is critical to get industrial strategy right. Since it was founded in 2017, the UCL Institute for Innovation and Public Purpose (IIPP) has advocated for industrial, and innovation, policy oriented around social and environmental “missions” to direct growth that is sustainable and inclusive ex ante and to shape markets that work for people and the planet.

In contrast, many governments see industrial and innovation policy as separate from social and environmental policy. This siloed approach has led to incoherent policies, with investments in social and environmental priorities too often seen as 6 coming at the expense of investments in economic growth, and with economic policies too often reinforcing market dynamics that operate at cross purposes with critical policy priorities. Well-designed mission-oriented industrial strategy can be an engine for economic growth. It can transform challenges into opportunities for the public and private sectors to invest, innovate and collaborate, and can be governed to share the risks and rewards of this collaboration. By catalysing cross-sectoral innovation, investment and transformation, missions can generate a multiplier effect; in other words, they can help ensure that public investment leads to a much greater impact on GDP than the amount invested. The way in which industrial strategy is crafted will influence the type of growth that results and who benefits.

This change in trajectory requires a change in theory. It requires a view of the state not just as a “market fixer” but rather as a market shaper. Rather than derisking, it requires welcoming the underlying uncertainty and experimentation that solutions to complex problems require. It requires moving away from thinking of public financial institutions as lenders of last resort towards seeing them as investors of first resort. And it requires bringing together the lessons from Keynes on demand-side policies, Schumpeter on innovation policy, and Minsky on the dangers of financialization. Our own work on the “entrepreneurial state”, market shaping, missions and the common good is central to this transition. But new theory is not enough. It must be tested, incorporating lessons from practice in a humble and experimental way. At IIPP, we call this “practice-based theorising”.

Pollster Focaldata released How Britain Voted, analysing how the Conservatives ended up with their worst result since 1832 and how Labour won a historic majority with just 34% of the vote.

The Conservatives have lost 23% of their 2019 vote to left-of-centre parties (Labour, Green, Liberal Democrats) and 23% to Reform. The former votes count double, since they were more likely to go to winning parties. The Conservative vote is now a similar composition to 1997 but a “shadow” of what it was. Its gains amongst leavers, C2, older voters, home owners and non Graduates made 2001-2019 have been wiped out.

Labour rebuilt the Red Wall with a vote share of 41%, up three percentage points on 2019. The party won 37 of the 38 Red Wall seats, with Ashfield going to Reform UK. The Conservatives lost all 28 Red Wall seats they won in 2019, dropping 24 percentage points in the process. The Liberal Democrats won a majority of ‘Blue Wall’ seats, with the party picking up 23 of these 43 seats that were won by the Conservatives in 2019. Labour’s vote share (17%) didn’t move, but the party gained 9 seats, with the Conservatives reduced to just 11.

Bar Islington North and Bristol Central, all the seats Labour lost were seats in which over a quarter of the population was Muslim. In addition, while Labour’s vote share sharply tracks density, Labour’s vote went down in the most densely populated areas compared to 2019.

There is strong evidence of tactical voting, with Labour and Liberal Democrat voters switching to support the next largest party in Conservative-held seats. In Conservative seats where Liberal Democrats got >20% of the vote in 2019, 1 in 3 Labour voters switched to the LibDems. In seats where Labour got >20% of the vote, 1 in 4 Lib Dem voters switched to Labour.

Book of the Week

We recommend Theodore Roosevelt: Preacher of Righteousness by Josh Hawley. Roosevelt, for all his failings, is a powerful exemplar of a politician who saw the inherent harmony required between order and liberty, between individual and community.

He knew that liberty is a fundamentally social undertaking. Like ours, his age prized personal freedom, and Woodrow Wilson bested Roosevelt at the polls by making personal choice the end of his political program. But Roosevelt understood that the individual’s highest capacities are realized in society. Labouring and learning, creating and worshipping, deliberating and governing: if the individual is able to pursue these activities, we say that she is free. Each requires a particular social context. Roosevelt rightly worried that freedom understood primarily as the right to choose, or as the U.S. Supreme Court has put it more recently, as the “right to define one’s own concept of existence, of meaning, [and] of the universe,” would obscure the institutional arrangements that made individuals’ most important life activities possible. For that matter, liberty-as-choice failed to differentiate between individuals’ highest callings and their more base desires; the theory eschewed such “normative” social judgments. Against all this, Roosevelt insisted that some pursuits are more worthy than others, and the most important ones—from political deliberation to family life—are possible only in a stable society governed by law and sustained by a healthy sense of the common good. Under the influence of Wilsonian-style liberalism, contemporary Americans have come to think of liberty in a way that is vaguely antisocial. We are vigilant for individual rights, but we have trouble saying what it is that social, political life is affirmatively good for. Roosevelt and the progressives remind us that political life is about practicing and protecting the activities that make us human and make us free.

Roosevelt also knew that politics is a profoundly moral enterprise. For better or worse, the laws a people adopt shape the type of citizens they become. Roosevelt was attentive to this formative relationship from his earliest days as a politician and historian. His study of the American frontier convinced him that only a certain type of citizen can sustain democracy. He spent the rest of his political life attempting to secure the conditions that made for responsible, independent citizens. He warned again and again that an economy that rewarded dishonest gain and exploitation of workers would ultimately undermine the moral rectitude and mutual sympathy between citizens necessary for democratic government. He cautioned that poor working conditions and weak families made for bad citizens. The descent of American politics since the Second World War into a banal project of economic management has encouraged us to forget that political choices implicate citizens’ characters. Questions about what economic or social welfare policies we should adopt are really questions about what sort of people we want to become, or that ought to be what the questions are about, anyway. Our politics would benefit if we recovered the link between civic character and liberty.

Quick links

A global IT outage has resulted in grounded planes and disruptions to hospitals and banks, apparently due to a failure at a cyber security company.

A bus burned and a police car was flipped during riots in Harehills, Leeds.

Around 5,500 offenders are due to be released early from prisons due to lack of capacity.

Former President Donald Trump nearly died in a near-miss assassination attempt.

Hillbilly Elegy author and emerging champion of the “New Right” J.D. Vance became his running mate, vowing to fight for “forgotten America”.

Labour will fast-trick plans to grant asylum to 90,000 applicants previously earmarked for removal to Rwanda.

The Met has failed to identify a single burglary suspect in 150 neighbourhoods for 3 years.

The Armed Forces face “huge uncertainty” after Labour refused to commit 2.5% of GDP to defence, the Tories claim.

Significantly more cash for the NHS is “not feasible”, a government adviser said.

Samsung acquired the UK AI start-up Oxford Semantic Technologies.

The Government refused to commit to supporting Northern Ireland based shipbuilder Harland & Wolff, which is in financial difficulty but is about to commence a major Royal Navy contract.

Labour MP Clive Lewis had to take his oath twice after initially saying he was was swearing loyalty to the King “under duress”.

Real average earnings are just £16 a week higher than in 2010.

Public sector net debt is now 99.5% of GDP, a level last since seen in the 1960s.

The Health and Care visa has been the most widely issued work visa by far.

3.6% of the current UK population arrived in the last 2 years, according to recent population estimates.

Extinction Rebellion’s co-founder was jailed for 5 years for conspiring to obstruct the M25.