Neil O’Brien: Five lessons from the pandemic

25 Jan

Neil O’Brien is co-Chairman of the Conservative Party’s Policy Board, and is MP for Harborough.

Planning for disaster

Years ago I was rummaging around in the basement of the Treasury and came across an old copy of the “War Book”: a big red tome setting out what to do in the event of nuclear attack.

Time had made some details rather quaint: if the Soviets were about to drop a trillion megatonnes of instant sunshine on Britain, I’m not sure “nationalise Girobank” would be the first thing on my to-do list.

But it was a huge, thorough plan. Each department had something similar.

Since the end of the cold war, thinking about civil contingencies has been lower priority. But our more connected world creates potential for new, faster crises.

Not just pandemics, but the financial contagion we saw in 2008. Our reliance on the internet, cloud, electric grid and GPS is increasing. More specialisation, plus more global chains of just-in-time production increase efficiency, but also fragility. You don’t have to be Martin Rees to think there’s new risks that we must plan against.

State capacity

It’s striking that the countries that did best in the Covid pandemic are those, like Taiwan and South Korea, which live under threat of annihilation by their neighbours. They’re dense, urban countries, but per head they had just three per cent and 0.1 per cent of the rate of cases seen in the EU.

Though we’re fastest in Europe, the world’s fastest vaccine rollout is in Israel – a country also under constant threat.

Other top performers include New Zealand and Australia.  They aren’t under such military threat, but have long been used to tough bio-borders. Australia went from one idiot releasing a couple of rabbits for fun, to having 600 million bunnies and having to build the world’s longest fence.  That was a pretty good early lesson about the exponential growth of a new organism introduced where there’s no predatorial ‘immune system’ to keep it in check.

New Zealand and Oz also imposed tough lockdowns in response to relatively few cases. At the time sceptics here said it was “absurd” and “out of proportion”. But our cousins were right, so they’ve been able to get back to normal faster. They basically followed the advice of Ripley in the movie Aliens: ‘nuke it from orbit – it’s the only way to be sure’.

Right across South East Asia and Australiasia, successful states have made their borders very tough. As vaccinations power ahead in the UK, we’re quite right to further toughen our borders against potential new vaccine-resistant variants. The cost of a vaccine dodging variant coming here would just be too high.

But there’s something more to learn from states that live under threat, about the need for state capacity.  Another top Covid performer is Singapore, where civil servants are very highly paid – but small in number, and low performers are managed out fast.  One reason the state shouldn’t be too big is exactly so that it can be strong and focussed.

China as number one

As people have pointed out, coronavirus has accelerated lots of trends: we’ve woken up in 2030. Paying for things is contactless. Videocalling friends is normal. More stuff is bought online. And China is closer to being number one.

Though some democracies managed the same feat, China’s brutal suppression of Covid-19 has been successful, meaning faster reopening, meaning the point where it becomes unambiguously the world’s largest economy is now only a few years away.

The last twelve months have seen Beijing start to throw its weight around more.

The west needs to get its act together urgently. There’s an internal economic challenge, to match their all-conquering innovation-industrial system. And a diplomatic challenge too, to reunite the democracies. At a China Research Group event last week with people close to the new Biden administration, it was clear that there’s an important role for the UK in making that happen.

Making a living

First it was the global scramble for masks and PPE.  Then ventillators.  Then diagnostics and testing kit. Now the global surge of demand for vaccine production and glass vials.

Again and again, the pandemic demonstrated why we need advanced manufacturing capacity: in a crisis, nations are utterly dependent without it.

To be sure, there were always other good reasons to back manufacturing.  Along with professional services, it’s the other part of the UK economy that really drives productivity growth: since 1997, manufacturing provided 40–50 per cent of productivity growth in places like Wales, the West Midlands and the North West.

But the pandemic underlines another reason to want such capacities here. When the international going gets tough, countries must be able to provide for themselves (topped up with firm agreements with allies for complex products).

This lesson is not lost on President Xi, who in a speech in April set out his “dual circulation” plan:

“we must build on our advantages, solidify and increase the leading international positions of strong industries, and forge some “assassin’s mace” technologies. We must sustain and enhance our superiority across the entire production chain… and we must tighten international production chains’ dependence on China.”

In case you were in any doubt, Xi also talked about “forming powerful countermeasures and deterrent capabilities based on artificially cutting off supply to foreigners”.

Since Margaret Thatcher left office, Britain has deindustrialised more than any other G20 country.

Perhaps it’s another area where we should learn from Asia: South Korea has nine times more robots per manufacturing worker than the UK, yet since the Lawson era the UK has slashed capital allowances which support such investment.

As a recent report for the Levelling Up Taskforce found, such allowances also tend to help poorer areas more.

Staying nimble

The Government was panned at the time for not joining the EU’s joint procurement of the vaccine.  But the team who secured more vaccine orders for the UK than any other large country showed the benefits of being small and agile.

We need to apply the same agility and flexibility to our exit from the pandemic.

I totally understand why people want to set hard dates to reopen. We are all desperate to get back to normality.

But there are so many unknowns: how fast cases will fall; what effect school reopening will have; how much protection people get from their first and second vaccinations; how much that stops the spread, not just symptoms; whether new vaccine-resisting strains come here; and how fast we can go on vaccinations…

Given all this we need to stay nimble in the final phase of this. On Friday we delivered 425,000 vaccination doses in England alone. Huge numbers of people are being protected each day.

We will soon jab our way to victory, and end this pandemic.

Afterwards, there’s all kinds of lessons we must learn from it.

Neil O’Brien: No, more economic prosperity doesn’t depend on more social liberalism

13 Jul

Neil O’Brien is MP for Harborough.

Danny Finkelstein took issue with Boris Johnson’s idea of “levelling up” in the Times the other day. He reviewed the work of Richard Florida, a thinker dubbed the “patron saint of avocado toast” for highlighting the role of bohemian urbanites in driving economic regeneration.

Danny concludes from his work that, “Social liberalism and economic prosperity go together.” He argues that: “in order to match the success and power of metropolitan areas, non-metropolitan places need to become more… metropolitan.  The problem with the metropolitan “elite” isn’t that there is too much of it. It’s that there aren’t enough members of it, drawn from a wide enough background and living in enough places.”

I hesitate to disagree with one of the smartest columnists on the planet. But economic growth and social liberalism don’t always go together.

What about the Victorians, combining breakneck growth with a religious revival and tightened public morals? What about Japan during their postwar decades of blistering growth and conservative “salaryman” culture? Over the last 70 years, Britain has become more socially liberal as our growth rate has slowed.

Even in Britain today, it’s highly questionable. London is the richest and fastest growing part of the UK.  But where is opposition to homosexuality and pre-marital sex strongest? London. Where is support for censoring offensive speech highest? London.  The capital mixes liberal metropolitan graduates with religious immigrants. Its success is shaped by both.

Danny’s other argument has more important implications. Is it really the case other places must emulate London to succeed? Like other capital cities across Europe, London has grown faster than the rest of the country since the 1980s. The shift to an economy based on “office jobs” over has favoured the centres of larger cities.

But we shouldn’t get too carried away by the idea that hipster-powered megacities are sweeping all before them. For starters, there are successes elsewhere. Cheshire has high tech in a rural setting, with productivity and wages above the national average.  Milton Keynes likewise, because it’s easy to build there. Productivity in Preston has grown faster than average because it’s a transport hub with advanced manufacturing.

On the surface, large cities outside London have done well.  Since 1997, our 16 largest cities grew their GDP faster than their surrounding areas: Leeds grew faster than West Yorkshire, Manchester faster than Greater Manchester, and so on.

But on average, those cities saw also slower growth in income per head than their surrounding areas. In other words, people became more likely to work in city centres, but that growth was fuelled by people commuting in from smaller places around them. Their growth has been powered more by smalltown commuters than flat-cap wearing uber-boheminans.

It’s right that there are cities outside London that have things in common with it, and might benefit from similar investments. Lawyers in London will soon get Crossrail. So why have lawyers in Leeds waited 20 years for a tram?

But too often Richard Florida’s work leads politicians to focus on shiny cultural facilities. A cool art gallery in West Brom.  A national museum of pop music in Sheffield. It’s not just that these projects flop and close. It’s that they distract from two bigger issues.

First, most people aren’t graduates – so we need a plan to raise their productivity and wages too.

Second, places outside urban centres are perfectly capable of attracting high-skill, high income people – with the right policies.

Britain’s economy is unusually unbalanced compared to other countries.  Pre-tax incomes in Greater London are nearly 60 per cent higher than the national average, but more than 20 per cent below average in Yorkshire, the North East, Wales and Northern Ireland.  These imbalances mean our economy is overheating in some places and freezing cold in others, slowing growth overall. There are no major economies that are richer per head than Britain which have a more unbalanced economy.

But these imbalances don’t represent pure free market outcomes. It’s true that low-skill, low wages places can get stuck in a vicious circle. True that some places on the periphery have very deep problems. Nonetheless, the British state doesn’t do much to stop that – in fact it does a lot to unbalance growth.

Consider how we spend money. Capital spending on transport infrastructure in London is nearly three times the national average. Research funding per head is nearly twice the national average. Nearly half the core R&D budget is spent in Oxford, Cambridge and London. Spending on housing and culture per head in London is five times the national average. We’re “levelling up” the richest places.

We’ve rehearsed these problems for years, but not fixed them. Instead of chasing flat white drinkers, we need to find a cool £4 billion a year to level up R&D spending in other places to the levels London enjoys. Fancy coffee can come later.

Consider our tax system. Overall, the tax rate on business in the UK is about average.  But we combine the lowest headline rate in the G20 with the lowest capital allowances. The combined effect of this is a huge bias against capital intensive sectors, particularly manufacturing.

That in turn has a regional impact, hurting places more dependent on making things: manufacturing accounted for only five per cent of London’s productivity growth since 1997, but nearly 50 per cent in the north west. A hostile tax system is one reason Britain has deindustrialised more than any other G20 country since 1990, and why manufacturing’s share of the economy is half that in Germany or Japan.

Manufacturing should be a key part of levelling up outside cities: it needs space, not city centre locations. In English regions outside London, wages in manufacturing are about nine per cent higher than in services, and manufacturing productivity grows faster than the economy as a whole.  But Britain’s excessive focus on professional services makes it harder to grow high-wage employment in non city-centre locations.

Consider where we put our key institutions. In Germany the political capital was Bonn, and is now Berlin. The financial capital is Frankfurt. The Supreme Court is in Karlsruhe. The richest place is Wolfsburg, home of Volkswagen. There are major corporate HQs spread across the country. TV production is dispersed because central government is banned from running it.

In Britain, all these things happen in just one city. We’ve talked about this for years, but made little progress.  In recent years, we managed to move one chunk of Channel 4 to Leeds, and a bit of the BBC to Manchester. But that’s about it. Whitehall only wants to move low-end jobs.

The debate on levelling up is frustrating, because we know some things work, but we don’t do them. “Regional Selective Assistance” boosted investment in poor places with tax breaks and subsidies.  Thanks to evidence from natural experiments, we know it boosted growth. Yet it was allowed to wither.

I don’t want us to be just another government promising the world, then not delivering. Politically, it’s vital we deliver. Lots of people who haven’t voted Conservative before put their trust in us last year. It’s telling that the centre point of the seats we won is just outside Sheffield.

We won on a manifesto combining centrist economics, (50,000 more nurses) mild social conservatism, (ending auto early release) and national self-confidence (Getting Brexit Done).  Levelling up is central to all this. We promised voters steak and chips.  We could serve up avocado toast instead, but we shouldn’t be surprised if the voters don’t thank us.