The great British cock-up: ten times the state got it catastrophically wrong
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The argument for an entrepreneurial state is a powerful one. But we need to be honest about the state’s track record as a strategic investor. As well as making some really good long-term bets – early US government backing for the internet being the prime example – the state can also get it spectacularly wrong.

On Wednesday, I wrote about the French government’s long infatuation with Minitel – a demonstrably inferior rival to the internet. But that sort of folie du grandeur is hardly unknown on the other side of the English Channel. Time and again, Her Majesty’s Government has misallocated the country’s wealth on a monumental scale.

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It has had ample opportunity to do so, because the modern state always has been, and always will be, the country’s biggest investor. When it spends between a third and a half of UK GDP every year, it could hardly be otherwise. Of course, most of this is current spending on things like public sector pay, pensions and benefits. But there’s also a huge capital spend of nearly £80 billion every year.

On top of that, there’s the influence of government decision-making on private sector investment. On matters like planning, transport and energy, government policy has shaped, and continues to shape, the development of entire industries and regional economies.

Before we give the entrepreneurial state an even bigger role, we need to examine its past performance as an investor – which, by any fair standard, is distinctly chequered.

Time and again, Her Majesty’s Government has misallocated the country’s wealth on a monumental scale.

What follows is a top ten of terrible investment decisions made by British governments since the Second World War:

1. Heathrow Airport

London is a global city it needs a world class airport – ideally a hub airport.

So where do you put it? How about right up against the city itself, surrounded be residential suburbs, hemmed in by reservoirs and within the orbit of the main ring road – thereby maximising the number of people whose lives are blighted by noise and air pollution, while minimising the space for expansion? Yep, that’ll do!

How on earth did the British government first make (in 1946), and then keep reinforcing, such a shortsighted decision? Well, there was an military airfield that needed a purpose immediately after the war1 – and it wasn’t as if air travel was ever going to find a mass market, was it?

It later dawned upon the geniuses of Whitehall that perhaps a mistake had been made – and that maybe, just maybe, a coastal location on the Thames estuary might be a better option. But government finds it hard to correct mistakes; and, expertly guided by those with a vested interest in the status quo, it follows the path of least resistance as surely as a pilot follows the path of a runway.

Credit: Photo by Jack Taylor/Getty Images

2. The Beeching Cuts

Few people doubt that post-war Britain had to prune the dense Victorian tangle of its railway network.

However, when Dr Richard Beeching was asked to propose a programme of rationalisation, his tool of choice wasn’t a pair of secateurs, but an axe.2

The biggest villain, however, was Ernest Marples – the government minister who commissioned the Beeching report. Marples also just happened to be the founder of a motorway construction company. No conflict of interest there!

The decimation of the network was bitterly opposed at the time (the Beeching report was published in 1963) and bitterly regretted in later decades3 – when demand for rail travel began to rise again. Though some lines and stations have been reopened, in many cases it’s no longer an option because tracks have been ripped up and land sold off for development.

Government finds it hard to correct mistakes; and, expertly guided by those with a vested interest in the status quo, it follows the path of least resistance

To give just one example: the Oxted line used to connect London, via its Uckfield branch, down to Lewes and Brighton. It could have been upgraded to supplement the now heavily used Brighton mainline. Unfortunately the line from Uckfield to Lewes fell victim to Beeching’s axe and the old route is now blocked by development. An immensely valuable corridor from London to the south coast was lost to Beeching’s myopia and Marples’ dodgy machinations.

3. Concorde

Ah, Concorde – you were the future once!

The supersonic plane is reckoned to be the most beautiful passenger aircraft that ever flew. Unfortunately, it was also one of the most expensive.

The enterprise began in the 1960s as a joint venture between the British and French governments. There were great hopes of sales all around the world. However, British Airways and Air France (both state-owned at the time) were the only airlines to purchase and operate the aircraft. Escalating development and manufacturing costs led other airlines to back out at supersonic speed. In the end, only twenty were ever built, including the prototypes.

The first flight was in 1969, but commercial services didn’t start until 1977. One had to be seriously rich to afford a ticket – but there were takers because, at twice the speed of sound, Concorde could cross the Atlantic in a mere three hours. Sadly, its speed was also a weakness – the sonic boom phenomenon meant that supersonic flight was banned over inhabited areas, limiting services to trans-oceanic routes.

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Concorde wasn’t the biggest white elephant to get airborne. A more worthy candidate for that honour is the Tupolev Tu-144, developed by the Soviet Union at around the same time as Concorde (and so similar in looks that it was nicknamed the ‘Concordski’). However, it greatly exceeded its western cousin in the scale of its economic and technological failure. Crashes brought an end to commercial flights shortly after they started.4

Tragically, it was a crash – Air France Flight 4590 – that brought about the end for Concorde too.5

4. AGR nuclear power stations

Tony Benn, that great champion of socialist state planning, was, as ‘Minister of Technology’, instrumental in saving Concorde from cancellation in late 60s.6 Fittingly, he also played a pivotal role in another ill-fated venture – the Advanced Gas-cooled Reactor or AGR.7 The supposedly superior design was meant be a sure-fire winner for British industry. In practice, the AGRs were plagued by construction delays and operational problems. Many of the problems continue to this day and we still have the decommissioning costs to look forward to – which were, of course, significantly underestimated.

With an unerring failure to learn from past mistakes, the current UK Government is now committed to Hinkley Point C – the fabulously expensive8 new nuclear power station due to be built next to Hinkley Point B, the first of the AGRs. HPC is of a different and more recent design – but one that already has a track record of construction delays and cost overruns. Undaunted, the Government has signed us up to the project – only this time we’ll be blowing billions to the benefit of French-owned industries instead of British ones. Brilliant!

5. The overbuild of coal-fired power stations

Another triumph for state planning and investment in the energy sector was the massive overbuild of dirty coal-fired power stations in the 1960s and 1970s.9

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The state-owned Central Electricity Generating Board (CEGB) had assumed that demand for electricity would increase in line with economic growth. In fact, thanks to energy efficiency and the off-shoring of manufacturing capacity to the Far East, energy demand has increasingly decoupled from growth.10

The legacy of the CEGB’s strategic error has been one of pollution plus a UK energy sector focused on ‘sweating assets’ not the development of greener, cleaner energy technologies fit for the 21st century.

6. The strangling of Birmingham

Britain’s great industrial cities literally made the modern world. Their decline in the 20th century was due to many factors, but one of the most important was the centralisation of political power in London.

In the post-war period, Whitehall decreed that the growth of Birmingham, which was booming at the time, had to be curtailed – in order to reallocate growth to cities further north.11

The central planners would discover that this is not how growth works. The long-term impact of their meddling hobbled Birmingham’s economy12 while doing nothing to help the North. Instead, by an amazing coincidence, investment and enterprise became concentrated where the politics and the power was – i.e. London.

7. The fall of Euston

The strangling of Birmingham was greatly assisted by town planners and architects. The city’s fine Victorian architecture was marred by, or demolished to make way for, ring roads, tower blocks and other concretopian horrors.

With an unerring failure to learn from past mistakes, the current UK Government is now committed to Hinkley Point C

For instance, the city’s Birmingham New Street station – a wonder of the industrial revolution – was knocked-down and replaced in the mid-60s by one of the most hated buildings in the country. At the other end of the line to London, the classical wonder that was Euston station met the same fate: demolished to make way for a modernist successor.

But while Birmingham plumbed the depths of brutalism, the new Euston didn’t even achieve that dubious distinction. It is an architectural non-statement – a low-slung slice of lifelessness. Not before time, it’s now set to be replaced – as Birmingham New Street already has been.

The plans for the new new Euston include a reconstruction of the Euston Arch – a famous landmark that was destroyed, quite unnecessarily, as part of 1960s redevelopment.

It tells you a lot about the mentality of the time that British Rail – the state-owned company that destroyed the Arch – refused to say what had become of its remains. Fortunately, these were rediscovered in the 1990s by Dan Cruikshank.13 

If the old stones can’t be be incorporated into the reconstructed arch, they should instead be fashioned into a monument to the spirit of post-war architecture and central planning. An extended middle finger, perhaps?

8. Insanity begins at home

Arguably, the best location to assess the acumen of government bodies is in their headquarters. After all, if they can’t run their own homes properly, why should we trust them with anything else?

Happily, there’s a long tradition of buildings that symbolise what we’ve come to expect from the organs of the state that reside within them.

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For instance, there’s the Home Office – whose cleaners turned out to be illegal immigrants. Or the Department of Energy and Climate Change, whose HQ was so energy inefficient that they had to turn off the air-con to cut back on its carbon footprint. Or Alexander Fleming House, once home to the Department of Health and Social Security – when it was notorious for Sick Building Syndrome. Outstanding stuff.

My favourite example, however, was an edifice known as Marsham Towers (a.k.a. ‘the three ugly sisters’). Completed in 1971, the complex consisted of three slab-like towers of twenty storeys each. They only interconnected at ground level, which wasn’t a big issue when the plan was to accommodate three separate government departments. However, the layout became a serious problem when the ministries were merged into one. How’s that for joined-up government?

And the name of the new super-ministry whose HQ wasn’t just dysfunctional, but also the most notorious eyesore in London? Why, the Department of the Environment, of course.

Just over thirty years after it opened, the building was knocked-down – a testament to the sustainability of purpose-designed state architecture.

9. Gordon’s gold

At about the same time that Marsham Towers was being reduced to rubble, the Government was completing the disposal of another asset – the country’s gold reserves. Gordon Brown, then Chancellor of the Exchequer, believed that gold was a ‘lazy asset’,14 because it just sat in a vault offering no guaranteed return. So, between 1999 and 2002, he sold off 395 tons of gold at an average price of $275 per ounce.15 By 2007, gold was trading at $600 per ounce. The price peaked at over $1,800 in 2011. Even today, it trades at something like $1,200.16 Buy low, sell high, is basic idea when it comes to trading, but Brown had sold at the very bottom the market – a decision that cost the country billions.

Credit: Eddie Mulholland – WPA Pool/Getty Images

Brown had forgotten that the purpose of gold is not to provide a predictable return, but a hedge against instability in the foundations of economic policy. As one of the key architects of those foundations – including the regulatory framework for the world’s most important financial centre (the City of London) – Brown was in no position to make an objective decision as to their soundness.

When the financial crisis burst almost every asset bubble except gold, Brown’s arrogance was fully exposed. It is not so much his failings as a commodity trader that condemns him, but his fundamental misunderstanding of risk.

Are these really the sort of people we want running an entrepreneurial state?

***

So there you go – my top ten statist fiascos. Of course, I do realise that I’ve only provided nine of them – but I’ve already exceeded my word count and blown through several deadlines. Things didn’t quite turn out as planned.

Of course, they never do. So perhaps we should think twice before entrusting major investment decisions to people who aren’t qualified to make them and who’ll never be held accountable for the consequences.

FOOTNOTES
  1. Jason Ford, ‘January 1946: The origins of Heathrow Airport’, The Engineer, 18 January 2018
  2. Christian Wolmar, ‘Beeching guilty as charged but should not have been alone in the dock’, Christian Wolmar blog, 17 March 2013
  3. Jonathan Glancey, ‘It looks like Dr Beeching was too hasty after all’, Telegraph, 22 March 2013
  4. ‘Concordski: How the Soviet Union lost the supersonic race, BBC, 1 June 2016
  5. The disaster, in which all aboard were killed, together with four people on the ground, is believed to have been caused by debris from another aircraft
  6. Tony Benn, ‘Concorde special – the politician – Tony Benn’, Flight Global, 21 October 2003
  7. Geoffrey Owen, ‘Book review: ‘The Fall and Rise of Nuclear Power in Britain’’, Financial Times, 7 March 2016
  8. Holly Watt, ‘Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant’, Guardian, 21 December 2017
  9. Dieter Helm, Credible energy policy: Meeting the challenges of security of supply and climate change, Policy Exchange, 2008, chapter 2
  10. Euan Mearns, ‘UK electricity demand, GDP and energy policy’, Energy Matters, 16 October 2013, figure 1
  11. Henry Overman, ‘Booming Birmingham and the Need for Rebalancing’, Spatial Economics Research Centre blog, 28 May 2013
  12. ‘How to kill a city’, The Economist, 31 May 2013
  13. Daniel Wright, ‘Lost beauty #9: Hardwick’s Hall (the old Euston station, London, UK)’, The Beauty of Transport, 10 June 2015
  14. Robert Peston, ‘Gold and Gordon Brown’, BBC, 4 March 2008
  15. Paul Farrow, ‘Gold: Does Gordon Brown’s regret selling half of Britains’ gold reserves 10 years ago?’, Telegraph, 8 May 2009
  16. https://tradingeconomics.com/commodity/gold
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