Andrew Lilico: On Localism, Lord Heseltine is interestingly wrong

Michael Heseltine was, after Mandelson, Blair, and Portillo (in that order) my fourth favourite politician of the past two decades.  It was therefore great to see Hezza (sorry – Lord Hezza) engaged with the political debate again yesterday, in defence of his “No Stone Unturned” report on growth — though at 233 pages and 89 recommendations the report is not, alas, a “one-sitting read”, and I shall only scratch a couple of its issues here.

As I would have expected, the report divides into the uninterestingly wrong and the interestingly wrong.  Almost all of Heseltine’s high-level commentary and defence of his philosophical approach is uninteresting wrong — just plain wrong; the opposite of right.  But as usual with him, many of the detailed proposals are interestingly wrong — wrong in a way that, reflecting upon, we might see our way to an improvement that builds on what he suggests.

It’s tempting to skip lightly past the uninterestingly wrong material.  After all Lord Heseltine himself notes that he’s out of step with much modern opinion on these things and seems to feel an avuncular duty to state his case just for the record without anticipating a sympathetic response.  He might also feel comforted that in practice government policies reflect his high-level philosophy and probably always will — how much value is there in debating what cannot be and never will, in our lifetimes at least, be changed?  But in fact it will be easier for us to understand where the interest lies in his detailed thoughts, and how to correct them, if we first understand why he is just plain wrong on these high-level points.

Lord Heseltine regards a healthy economy as a partnership between business and the private sector.  He sees government as needing to work with the private sector so as to best identify what things the government needs to do to help the private sector flourish, and the private sector as needing to work with government both as a partner and to understand what’s coming.  A central task of government, for Lord Heseltine, is the promotion of wealth creation by judicious government intervention.  He is a classic out-and-proud corporatist.

Indeed, I do not think it fanciful to connect this philosophical position with his advocacy of the  Conservative Party.  He has frequently argued — to the bemusement of many a Thatcherite ideologue — that the key reason for voting Conservative was because Conservative politicians are better managers and, being more frequently businessmen themselves, understand the wealth creation process better.  For Lord Heseltine, the economy as a whole is akin to a gigantic corporation that requires skilful managers — preferably ones that have built up experience in smaller tasks, like running a FTSE100 company.

But an economy is not a business – the “UK Plc” metaphor is a terrible way to think of a country’s economy.  And a country’s economy does not operate as a single partnership between monolithic mono-interested “business”, “unions”, and “government”.  Lord Heseltine regards it strong evidence in favour of his position that he is supported by the TUC and the CBI.  In the past, those two bodies agreeing has often been a strong indicator of error — euro, anyone?

Lord Heseltine chastises the naiveté of those believing that low tax regulation and government that gets out of the way is the route to prosperity.  Perhaps some folk are naïve, but there are those of us with more concrete growth plans: cutting government spending; increasing the efficiency of government spending; increasing the size of the labour force by increasing retirement ages; promoting debt reduction; enhancing the healthy functioning of the banking sector — just to name a few of my own proposals.

Lord Heseltine tells us that wealth does not create itself.  That’s not really true, in that much of a country’s wealth may come from its rich animal life, its mineral wealth, its human resources — all of which do create themselves.  But even if we took a narrower definition of wealth and conceded it did not create itself, that would not mean it is created by governments.

Most of what government does adds to prosperity in the broad sense of advancing human flourishing and welfare.  But in the narrow sense of adding material value, only a minority of government action adds to prosperity.  Governments add value by defending property, by securing and standing behind contractual promises, by creating and regulating a medium of exchange (money), by tackling unproductive vested interests (e.g. monopolies), and by preserving order through income support benefits (the man who is hungry may be left with little option but to riot or steal).  But these are not the kinds of things Lord Heseltine has in mind.

I’ll attempt the most generous interpretation.  Let us suppose he imagines governments producing a vision for itself of the structure of the economy that would be implied by their infrastructure developments, locational choices of government departments, policies on issues such as climate change, geopolitical choices such as whether our allies are in Europe, and other kinds of policy — a suite of such policies might, for example, imply that some industries were more likely to flourish than others — and then, armed with its vision of the future economy, carry that through in promoting those sorts of industry, so as to provide confidence to investors that those are indeed the right industries to
be invested in.

I can kind-of imagine how that might operate, in an ideal world.  But there are huge practical problems that mean it is extremely unlikely to work in anything but the simplest or most localised settings.  One key reason is that in a complex large economy such as the UK, government foresight would be defeated.  In other words, the government of a country like the UK couldn’t, in truth, have the foggiest idea what industries were truly likely to succeed under one set of policies as opposed to a subtly different set.  Suppose that our closest allies are France and Germany, that we intend to be a nuclear power, that government intends to be moderately pro-green, and that development will be facilitated rather than opposed in the South East of England.  Does that mean the biotech sector is more likely to be a larger proportion of the economy in 2030 than it is today than if, say, our closest allies were Australia and Canada, or if the government were very pro-green, or if the government moved the capital to Leeds?  Even if we could work out that, indeed, the biotech sector would be bigger under unchanged technologies and unchanged policies abroad, how would that be changed if medical nanobot technologies flourish suddenly in 2022, or if China goes democratic?

In practice, there is simply no way for the government of a complex country to have any basis for favouring one industry over another, even if its general suite of policies does tend to imply the greater flourishing of some industries.  In practice, even if they had the best intentions, national industrial policies would inevitably degenerate into protectionism, empire-building, corrupt subsidy-seeking, and the promotion of pet schemes.

But what is impractical at national level may be less impractical at the more local level.  A local authority could indeed decide that it wants to be where the nightclubs are, or the cereal factories, or the casinos or the museums.  And there are reasons that might even promote prosperity at the local level when it wouldn’t at the national — bringing us to where he is interestingly wrong.

Lord Heseltine proposes a radical restructuring of the way local economic development grants are distributed, saying some £58bn of them should go into a special fund that local economic partnerships would bid to access.  He envisages this in particular promoting the growth of cities — drawing on his experiences in Liverpool in the 1980s.

He tells us that we have become trapped in a centralised, London-oriented concept of city growth, and that we fail to consider what are the special strengths of different places. I think he’s right in that, but not nearly radical enough and trapped in certain pictures of the 1970s and 1980s.

National industrial policies of the sort Lord Heseltine proposes should be promoted at Cabinet level have, in the UK in the past, been appalling failures.  But something usually called “industrial policy” has continued.  In truth, “industrial policy” has long-since become a form of regional policy focused upon attracting industries to locate in deprived or run-down parts of the country so as to regenerate them and build national solidarity.  This form of industrial policy does not pretend it creates national wealth — it does not; it uses it up.  But it has, in the past, spread prosperity to places that might otherwise have stayed depressed for some time.

Over the past 20 years, however, an international cadre of mobile high-value-adding workers has developed — software engineers; finance professionals; consultants; and so on — for whom their physical location might be far from where their work finds its physical realisation.  The computer programmer in Mumbai might design and maintain a management information that runs a factory in Los Angeles.  Competitiveness is increasingly becoming a matter, not of attracting businesses to locate in an area, but, rather of attracting these mobile footloose workers.  They then spend on local services — they use the local shops; go to the local nightclubs; etc..  Regional policy to promote prosperity is becoming about attracting people, not business.

Lord Heseltine’s vision of each local area having its own vision of what it is good at is helpful and right, but his concept of how to implement that into a policy is outdated.  Each local area should not be conceiving of the businesses it wants to promote, but of how it can attract key people — who will differ in their tastes.  Some will want rolling countryside; others will want nightclubs and coffee houses; others will want libraries and museums and universities; others will want the busyness of industry.

National industry policies would not promote growth.  They would impede it.  We should avoid them like the economic plague that they are.  But highly localised visions, in which each local area of the UK considers its own actual and potential strengths in attracting internationally mobile workers could, indeed, point one way to a more prosperous future.