Olivia O’Sullivan
And hello all. A very warm welcome to this panel on the question of Can the UK Afford Global Britain? And we’re here to discuss whether the UK’s economic position matches its foreign policy ambitions. My name is Olivia O’Sullivan, and I’m the new Director of Chatham House’s growing programme on the UK’s role in the world. I’m really delighted to be having this panel discussion this evening.
Firstly, because I think it’s going to be a fascinating conversation. Secondly, because our programme is seeking to publish a report before the next election on the big decisions and trade-offs for the next Prime Minister on foreign policy. And one of our key themes is, “Can we afford all of our foreign policy ambitions? Can we afford to have the role in the world that we seek?” So, not only will this be very interesting, you’re helping us with one of our ongoing research projects, and everybody’s questions and participation this evening will be helping us with that as well. So, thank you so much to our panel and to everyone who’s come along.
I’d like to start by welcoming our speakers. So, we’re delighted to have, Philip Stephens, who is a contributing Editor for the Financial Times. He writes on global and British Affairs and he is most recently the Author of Britain Alone: The Path from Suez to Brexit, which is a great scan of our, kind of, 20th Century foreign policy ambitions and, in some cases, blunders.
Dr Rebecca Harding is a Senior Research Fellow at the British Foreign Policy Group. She’s an Independent Economist, specialising in trade and trade finance, co-author of the acclaimed, The Weaponization of Trade: The Great Unbalancing of Policy and Economics, as well as many other books on similar topics.
And finally, the Rt Hon Liam Byrne MP, who’s a Member of Parliament for Birmingham, Hodge Hill. Liam, is also a member of His Majesty’s Privy Council, a Chair of the Global Parliamentary Network on the World Bank and IMF, and a member of the House of Commons Foreign Affairs Committee. He was Chancellor of the Duchy of Lancaster during the global financial crash and latterly, Chief Secretary to the Treasury. He himself is also an Economic Historian who has published over 20 books, pamphlets, and chapters on economic history and foreign policy. So, we’re very well furnished with our panel tonight, and we’re really delighted to have you here.
Before I introduce the discussion and talk a bit more about the themes we’re hoping to address tonight, I’ll just briefly go through how this evening will run. So, I’ll introduce the topic. I will turn to the panel for about five minutes to cover the core questions and themes of tonight’s conversation. And then we hope to have ten to 20 minutes of discussion amongst the panel, but then we’d really like to turn to you for your questions. Please do ask questions rather than make comments, and try to keep your questions brief so others have a chance to participate. And please do forgive me if I hurry you along or ask you to wrap up your point. It’s only so that we can hear from everybody and get as much participation as possible.
If you are here in person and you have a question, please do raise your hand. When you ask your question, we’d love it if you would introduce yourself so we know who you are. Please do stay seated and microphone will come to you so that you can ask your question. And for those joining us online, you’re very welcome. Thank you for doing so. I will – please do submit questions into the Q&A box on your Zoom screen, and I will pick out questions online and put them to our panel as well. I will read them out. Just to make sure that everybody is clear, this discussion is on the record and is being recorded, and please do share about the discussion. We really encourage people to tweet. If you could use the #CHEvents and the handle @ChathamHouse, we’d be most grateful. So, I think that covers all the housekeeping. I hope it’s clear how this evening will run.
Onto our discussion, Can the UK afford Global Britain? Britain has some very ambitious plans for its role on the world stage, and the government attempted to set out its stool for those plans in 2021 with its Integrated Review, and since then, with its refresh of the review, which was published in March 2023. Both documents set out some very big plans. They include for the UK to increase its diplomatic and its military presence in the Indo-Pacific region. For it to seek global leadership in some of its key – in some key economic areas, not least science and technology. For it to improve its economic resilience and its prosperity, and for – in some cases, it to act as a broker and leader on some pressing global problems, not least climate change mitigation and adaptation.
Those plans and – signify and require significant defence expenditure. Between the period of the first review and the refresh, the UK announced an ambitious defence partnership with Australia and the US, AUKUS, to provide nuclear submarines to Australia. But in that time, of course, also Russia invaded Ukraine and the UK has played a signal role in providing military support to Ukraine and all of this costs.
But the other thing that those two documents do, which I think we’re going to touch on a bit this evening, is they put the economy at the heart of our national security, maybe more than has been the case in the past. And the government’s published a number of strategies. It’s energy security strategy, international technology strategy, semiconductor strategy most recently, all of which don’t just set out issues where the UK is seeking leadership or an influential voice, they set out ambitions for the government to play a role in protecting critical industries, protecting supply chains from shocks, from threats, from hostile actors. But we lack the kind of largesse the EU and the US has been able to provide to its critical industries with their – the US’ Inflation Reduction Act and CHIPS and Science Act, the EU’s Chips Act. All of these involve significant subsidy to critical industries. We’re not in that place.
In that time, in the period between the review and the refresh, in fact, GDP’s not recovered to pre-pandemic levels. We continue to see the effects of Brexit on trade. We have long time economic productivity problems, and we are in a significant cost of living crisis. So, the government remains in a difficult fiscal position. We’ve set out a lot of big goals, but resources and political bandwidth are limited. And that is what we would like our panel to help us solve this evening, to address this evening.
Some of the key questions we were hoping you would reflect on for us are, where are we? What state is the economy currently in? Can we support our ambitions, not least the tilt to the Indo-Pacific, our military spending, our support for Ukraine? How long can we support those ambitions? Can we afford soft power leavers that we have been less able to afford, like BBC World Service, aid and development, that have been critical to our image in the world? Can we do anything to change our position? Can new trade agreements change it, joining new trade agreements as we have in the Pacific? To what extent can we afford our ambitions and where are we?
So, just a few easy questions for the panel. I’d like to start, having set those challenges, with turning to, Dr Harding, Rebecca, and to just kick us off with some reflections on the state of the economy, but also this, kind of, new economic gloss on national security that we’re seeing other countries and other blocs and powers adopt as well. Over to you.
Dr Rebecca Harding
Yeah, thank you very much indeed and, I mean, it’s a great privilege to be here and thank you very much for the invitation. I think, in order to define what we can afford to spend money on, we need to define what Global Britain is, and I think if I start with that as a first point. So, Global Britain rings a little bit of a nationalistic, protectionist nation that’s floating away from Europe, that’s floating away from the United States. And I would say, if we are looking at the Integrated Review and the Integrated Review Refresh, there is a need profoundly to think about our role in global – the global international community, and that means in terms of military security, but particularly in terms of economic security.
Now, why do I say that? It is because, the second point, which is, that the context, the economic context has fundamentally shifted and it’s not since the invasion of the Ukraine, it’s actually been changing for a number of years now. In fact, I would say since the global financial crisis. What you’ve seen is obviously a rise of China, which has come from a very significant integration into global trade that came directly after the global financial crisis. So, you saw a large amount of investment going into China. You saw a large amount of trade finance, in other words, funding of trade going into the Global South. A lot of that centred around Hong Kong and China as well. And what that’s done is, at the time, quite rightly, allowed all of our systems to become integrated in a very strategically interdependent way.
Now, what that means is that as soon as we reached 2015/2016, and Donald Trump and Boris Johnson were beginning to come into power and start thinking about, sort of, more nationalistic approaches to trade and economics, more protectionism, more, sort of, exporting is great. You export more, I export less, I lose. I export more, you export less, I win. That type of zero sum thinking around global trade. That has actually defined our trade policy, certainly in the United States and, to some extent, in the UK. And that is really worrying because it means effectively trade is weaponised, which means that a core driver of the UK economy, which is our international trade position, is then weaponised as well.
Now, the other thing that’s happened as a result of the post – I’d say post-financial crisis arrangements, is that we’ve seen an integration of finance, but technology has been moving very quickly as well. So, actually, this is all reflected in the Integrated Review without defining actually what Global Britain is within that whole framework. Now, we have a very powerful financial centre.
Olivia O’Sullivan
Yes.
Dr Rebecca Harding
And that financial centre is critical to some of the success that the UK has. It’s incredibly important that we retain the financial centre and the capacity to be able to invest in businesses as they’re coming through, for example. And I think it was Rachel Reeves who said the other day, “We have capitalism without the capital at the moment.” And I think that is actually a very profound statement.
Now, so, all of this leads to the third point, which is if the economics of this are so important, what is the key problem that we need to be able to face? Because we are an open economy, we are a global economy as well. The core problem that we face at the moment is actually in our supply chains. Now, I actually took a picture in Waitrose the other day, as you do, of empty shelves that were meant to have fruit and vegetables at a total prime time and we have a core supply chain problem.
Now, that is absolutely integral to the Integrated Review because what we’ve realised, since the invasion of Ukraine, is that we are critically dependent on certain supplies of things, and that was also in COVID as well. We were totally reliant.
There was the Chairman of Jaguar Land Rover going over to China with suitcases to pick up semiconductors. That’s deeply worrying. So, this whole issue around supply chain resilience is something that we, as an economy, really need to think about. What does that mean? Is defence and security? Of course it is, it’s military procurement. It comes down to things like where do we resource our shift, our transition from fossil fuels to the electronic economy? That means rare earth metals. How do we get enough charge points? The investment in infrastructure is incredibly important, but that then leads to a bigger political problem, geopolitical problem, which is, how do we start to work with countries, for example, in Africa or emerging Asia, places like Vietnam? How do we form those types of trade arrangements that are actually strategic? Because in trade terms, they mean relatively little to us.
So, I’ll finish by saying there are three problems. One’s, what’s Global Britain? Two, the fact that the economy is actually creaking at the moment. We might avoid a complete recession, but most people won’t notice the fact that we’ve avoided a recession. And the third thing is, how do we make our supply chains capable of being weaponised and actually a tool of deterrent – deterrence in the same way that we have a military deterrence.
Olivia O’Sullivan
Thank you so much, Rebecca, and I think that paints a picture. That’s, you know, that’s quite a tough prognosis. We – our economy is creaking, but…
Dr Rebecca Harding
I’m a dismal scientist, so…
Olivia O’Sullivan
But, I mean, a helpful picture perhaps of one where, you know, we need to be consolidating at home. Our economy is creaking. We’re in a more, kind of, economically geo competitive world. We have to protect our supply chains, protect our, you know, critical components that we rely on.
Liam, can you, kind of, paint us – is there room in that picture for a more ambitious foreign policy? You’ll – you know, is there a, kind of, global role for Britain or should we be, sort of, battening down the hatches a bit in this situation? Can we get ourselves out of this?
Rt Hon Liam Byrne
So, let me reframe it a bit and let me start in the same place, which is to thank Chatham House for this conversation. Over the next year, you know, you’ve got such an important role in helping replace something that we’ve lost in this country, which is a long-term consensus on the future of foreign policy, because, you know, the truth is, over the last ten years, largely from the right, the Brexiters have really, kind of, hammered our relationship with Europe. But, you know, the left doesn’t get away either because, you know, under Mr Corbyn, you know, there has been a pretty significant trashing of our relationship with the US as well. And, you know, what we’ve got to do is to, sort of, move beyond this, sort of, mutually destructive attack on our closest neighbours and begin trying to form a new long-term consensus for British foreign policy.
And, you know, the starting point for your debate tonight is absolutely right because I thought Lord Patten put it pretty well on Question Time last week. He said, “We’re in a hell of a mess.” And do you know what? He’s right. You know, we’ve got the worst growth in the G7. I don’t want to rehearse the dismal list. Worst growth in the G7. You know, we have the worst squeeze on living standards since the 1950s. We have the highest peacetime tax burden. We have debt now at over £2 trillion. 80% of that rise since 2010 was before COVID. So, we’re in a really difficult position. But the point for this debate is that foreign policy has to be part of how we escape the trap that we’re in at the moment. And so, what that means is that foreign policy can’t be some kind of post-colonial comfort blanket that we’re, you know, punching above our weight. We actually need a foreign policy that is going to yield security and prosperity at home by transforming our influence abroad.
So, I think there’s two or three ways that we can do that. You know, some of this was implied by the Integrative Review. I realise I’m talking to one of the former co-authors. So, I’ll, you know – but there are, sort of, two or three points that I think, potentially, we could foster some of this consensus around.
So, the first is to move, I think, beyond this language of the rules-based order. So, we hear rules-based order all the time in foreign policy debates. Actually, the first priority for Britain today is the rights-based order. It’s that family of nations that share a tradition that goes back to the Magna Carta and the Bill of Rights and the US Declaration of Independence and the European Human Council – Human – European Human Rights Act, the conventional human rights, you know, those are our neighbours. Those are our allies. You might, kind of, call them today, the ANNEQ, so, AUKUS, NAFTA, NATO, the EU, and the Quad, plus some friends like Switzerland, Korea and Israel. You know, together, that group, if it’s to be strong abroad has to be strong at home. And the reality is, before COVID, that group was growing at a slower economic rate than countries classed as less free.
Now, that is changing, and it’s changing because those countries have woken up to something, which is that they’re now having to confront a large non-market economy called China, but also Russia, that’s integrated into the global economy. Now, they can do two things to solve this problem. They can decouple, but actually, what the IMF warns is that if you decouple fully, including technology, you knock about eight to 12% off global growth at a time when global growth is lower at – it’s actually at the lowest level that we’ve had since the fall of the economic war. So, you can decouple or you can actually reboot. And what our closest neighbours, in the EU and the US, are doing is rebooting.
So, if you put together the Inflation Reduction Act, the Green New Deal Programme in Europe, plus the CHIPS Act in America, plus the Chips Act in Europe, that’s $1.5 trillion of investment that is going into high value added industries over the next ten years. That is a gamechanger and, you know, what was really clear, and you can see this very clearly in Jake Sullivan’s speech a week or two ago, you know, that is going to be the strategy that the West is now going to pursue. And guess what? We’re shut out. So, we’re not in the Horizon Programme. We’re not in the EU-US Tech and Trade Council. We’re not in the Horizon Programme. We’re not in the new dialogue that Presidents Leyen and Biden announced a couple of weeks ago. So, we’re in a really precarious edge, and by the way, we’ve also abolished industrial policy in this country, over the last, sort of, three to four years. So, you know, we have urgently got to reimprove – we’ve got to improve our economic rate of growth by actually getting back in to that family of the rights-based order.
Those economies, by the way, are two thirds of global GDP, 61, $62 trillion. So, if we’re to build a friendshore, that’s actually not a bad place to start, but it means that we’ve got to rediscover the industrial policy that Gordon Brown started and Theresa May tried to take forward. And there’s, kind of, three areas where you could really begin to move in that. So, one is in defence procurement. Global defence spending is rising at somewhere between 200 and $700 billion at the moment a year. At the moment it’s riddled with ludicrous inefficiencies, actually deepening co-operation in defence procurement could be one big start.
Second, we have got to begin co-ordinating critical supply chains. But do you know, the problem with trying to do that in the UK, is that we don’t know what the critical supply chains are. So, the government has not defined them anywhere at the moment. So, if we were to actually get a space at the table in the EU-US Trade and Tech Council and the new economic security dialogue, we’ve actually got to say, “Look, we are now going to specify an industrial strategy. This is what it looks like.” And this is what Rachel Reeves is talking about when she’s talking about securomics. It’s an incredibly important thing that we’ve got to get over in this country if we’re to join in with deeper integration with the friendshore.
And then, if you do that right, then you can begin deepening partnerships in critical minerals. So, the world has got to mine something like three billion tonnes of critical minerals between now and 2050 in order to hit the Paris Climate Agreements. That’s about $1.7 trillion worth of investment. We’re not short of critical minerals. What we’re short of is processing capacity in the right places like Africa, like Central Asia. But again, that is much easier to do. That’s much better – easier to organise if you’ve got a critical supply chain strategy in the first place. So, rights-based family is the first thing that we need to, kind of, really reinforce if we’re to put up the rate of economic growth.
Second, you know, we do then need to think much harder about our soft power because ultimately, if we’re to trade our way out of the slow rate of growth that we’ve got today, we’ve got to remember that trade is based on trust. And if we want to build trust in those economies that, you know, aren’t going to pick a side actually between East and West, we’ve got to transform our development assistance. We can do that very efficiently through the World Bank and through the IMF. Every $20 billion of money that goes into the World Bank is $200 billion of lending over a ten year period. We could use the money that we get back from the European Investment Bank. We could actually begin putting that into the World Bank to begin leading the argument for building a bigger World Bank. It’s about the only Brexit dividends that I’ve ever been able to think of, actually. So, there’s a lot that we can do in development assistance at actually very low cost.
And then if you talk to Ambassadors around the world, basically, you know, there are just – there are four or five things that we should do on soft power, which are very straightforward. So, seeing English as a strategic enabler, expanding the word – work of the British Council, radically expanding the BBC Worldwide is the best StratCom strategy that we could possibly think of. Increasing education links like Chevening scholarships, higher education partnerships, military-to-military links. You know, these are all things that can be done actually in a low cost, high yield, kind of, way. And then, you know, we’ve got to think about where we actually focus. And although, you know, the tilt to Indo-Pacific is well trailed and has become a, kind of, a bit of a new shibboleth in foreign policy, actually, a lot of the threats and the opportunities are much closer to home.
The Arctic is going to be a really significant threat. That’s going to be a place that’s much more dangerous because of the new relationship between China and Russia. Central Asia is a huge opportunity for us because it’s a one-stop shop for critical minerals and they’re desperately trying to figure out how to diversify away from their dependence on China and Russia. But the big space is Africa.
One in three people this year will be born in Africa. What that means is that by 2050, the prime working age population in Africa will be five times bigger than the whole of Europe put together, be bigger than India and China put together. If Africa – if just half of African nations got the productivity gains that China secured, they would grow their economy by something like – they’d grow the global economy by getting on 40, $50 trillion and 60% above GDP last year. So, the huge opportunity in growing new markets is in Africa where there is this, kind of, whirlwind of crisis at the moment, which we could be doing a lot more about.
So, you know, Olivia, I think, you know, when you look across history and, Philip, is the better Teacher than I could possibly be on this, you know, our political economy history is littered with false economies. And one of the worst false economies we make in our history is by underfinancing foreign policy. If we are to grow faster in the years to come, if we’re to grow well in the years to come, we’ve got to make sure that we’ve got a foreign policy that’s well capitalised in order to help.
Olivia O’Sullivan
Liam, thank you. Philip, Liam, set out a picture there where, you know, we’re in a bleak place, but we have options. We can trade with a, kind of, rights-based order, with a democratic family of nations and we invest in our foreign policy, and if we do it right, we can unlock our prosperity. Have we been here before and what should we learn?
Philip Stephens
Yes, and thank you, Olivia, for inviting me to this and I think it’s a great – as has been said, it’s a great project. I mean, I agree with Liam. There are great opportunities, but we do have to learn from experience. And when I saw your title, Can the UK afford Global Britain? I thought, yeah, we’ve been here before. And about every government since the war has said briefly to itself, “Can we afford all these, sort of, ambitions, global ambition?” Of course we can. And then along the way have discovered that of course they can’t. So, if you look at our foreign policy over the last 75 years, it’s basically been a series of collisions between vaulting ambition and economic realities, and the shifts in geopolitical power. So, you can talk about Suez, then the Defence Review forced up cutbacks there. The, you know, Sterling devaluation in 67 and the retreat from East of Suez then. And if the Argentine Generals had invaded the Falklands a year or so later, they probably would’ve kept them because Margaret Thatcher, at that point, was going through an economics driven Defence Review, which was – would decimate the Navy.
And I’m going to start and rest my case on a quotation from my favourite post-war civil Servant and this chap was a chap called Henry Tizard. And he was a Scientist during the war, but he actually also served as a personal emissary between Churchill and Roosevelt. And he – although a Scientist, and he was a Chief Scientist at the Ministry of Defence after the war, he also thought about the world. And I’m going to read this out ‘cause I think it’s the best and most insightful thing that’s been said about British foreign policy in the last 75 years, and it was said in 1949. And so, Henry Tizard said, “We persist in regarding ourselves as a great power capable of everything and only temporarily handicapped by economic difficulties. We are not a great power and never will be again. We are a great nation, but if we continue to behave like a great power, we will soon cease to be a great nation.”
Now, I think that’s a sentence that could well sit over the desk of a modern Prime Minister because, as I said, if you look back and the series of, sort of, cat – you know, we have withdrawn from the world, but we’ve withdrawn from the world at moments of economic crisis rather than after moments – after periods of reflection in which we’ve come to a settled view. So, I think my first, sort of, lesson from history or from experience, the first principle of today’s foreign policy should be self-awareness.
We should understand that as a nation we have many important qualities and contributions that we can make to international order, to international rights and to international wellbeing. But we should understand that they are not the contribution we made a 100 years ago, good or – some would say, for good or some would say for ill. So, let’s have a certain humility about what Britain, a middle power in a world that’s going to be dominated by the great power competition between China and the US, what we can do?
My second principle, and I’m going to try and keep to my five minutes, drawn from the experience of the post-war era is that, geography is destiny. We learnt that the hard way after refusing to, sort of, contemplate joining the then Common Market in the 50s. We learnt it the hard way in the 1960s, and we realised that we couldn’t exclude ourselves from the continent upon which our prosperity and security most closely depends. We unlearnt that lesson in 2016 when we pulled ourself out of that continent.
Now, I don’t want to get into a debate about how much of Brexit you should or could undo, but the lesson is surely that we are going to have to rebuild seriously our economic and our security and defence ties with the rest of Europe. If you look at what’s happened to the EU in the last, you know, three or four years, there’s been a transformation both in its capabilities, now it’s in ambitions. There is going to be a European defence identity of sorts. There’s going to be a European defence industrial strategy. There is going to be, and we’ve seen it – we’re seeing the beginnings of it now, a European policy towards what’s loosely called the Global South, aimed at rebuilding some of the relationships that have been broken. We can’t continue to absent ourselves from that.
And then the third point, again, drawn from history is that military power is important. And I’m the first to say that the fact that Britain remains a serious military power is quite important. And I’m, you know – but what we can’t do is pretend, as we have for the last 50 years, that we’re what the Generals call a full spectrum military power that can go to war on its own. When you do that, and we still pretend that, what you end up with is aircraft carriers for which you don’t have the frigates and destroyers to act as escorts and you can’t afford the planes that you want to put on. You end up with an army at a time of a European land war, which is really, as the Americans keep telling us, is no longer a, sort of, first tier force.
So, we have to think carefully about how we’re going to organise our defence and how we’re going to organise it in collaboration, both in terms of deployment, but also in terms of industrial strategy with our closest partners. But beyond defence, and this has been said, we have lots and lots of strengths. One of the – you know, everyone seems to agree that one of the con – many contests in this, sort of, fractured world, over the next few years, is going to be competition for the support, whether it’s transactional or otherwise, of many countries, middle powers in the Global South.
We have links. We also used to have the one thing in which we were a global leader was development. And we’ve temporarily, I hope, thrown that away. But there is – there are – there is power that we can deploy. And as Liam said, we have the English language, we have the BBC. We have a Diplomatic Service, which, for all the attempts of some Ministers to turn it into a, sort of, team of traveling salespeople, is still formidable. We have intelligence services that are formidable. So, we have a spectrum of contributions that we can make to the global commons, if you like, but in each one, we need to measure carefully what we can do and do that and not try to do more.
So, my answer is no, we can’t afford Global Britain because Global Britain is a throwback to the nostalgia of empire and post-imperial. We can afford to be global in our outlook if we understand how to match our substantial resources with our ambitions. Thank you.
Olivia O’Sullivan
Thank you. I would like to come to the audience for questions. What – while you think, I’m going to pose one question back to Rebecca and then we’ll get to Q&A. So, both, Liam, and, Philip, there outlined, sort of, not Global Britain, but a vision where we in particular co-operate with allies. Liam, referred to the friendshore, where we, you know, get back involved with a, kind of, shared defence industrial strategy, whether it’s with Europe or with, kind of, groups of more democratic countries. Would they have us?
Dr Rebecca Harding
Very interesting question. I think if you’d asked that question maybe three or four years ago, almost maybe pre-COVID, I think the answer in Europe would’ve been, yes. I think the French might have had one or two issues, but the Germans actually would. I mean, I lived and worked in Germany. I think the Germans were deeply sad that we left. And up to a point they would’ve been actually reasonably comfortable with us coming back and until – left doors open.
I think now, we would be welcomed back in an intelligence and security framework because we have intelligence and security frameworks in this country that are worldclass, and that’s no exaggeration. I think we would have to co-operate though in things that we probably can’t co-operate. Defence and Security Strategy, a combined Defence and Security Strategy has been something that’s been very difficult.
But let’s have a look at what’s actually happening in the economic element of this international competition. We have to have an aligned approach on China, and that we have to make sure that we understand the role that China plays the threat. If it’s a threat, the competitive threat, the strategic threat that China poses. And a lot of that, in the end, comes a – comes down to the underlying power in our economy. Are we sufficiently strong, as a buyer actually of services, to be able to influence and coerce with industrial strategy, export control, sanctions and so on?
So those are actually the weapons that we’re using now when we can’t actually use direct military engagement in Ukraine. We’re using export controls, we’re using industrial policy, and we’re using obviously sanctions. And I want to dwell on this industrial strategy thing a little bit because both Philip and Liam mentioned it and it’s incredibly important.
You look at the way the US is now defending itself and it’s defending itself through its Supply Chain Act, but it’s also defending itself through industrial strategy, so, the Inflation Reduction Act, through its technology policy, through the commerce department, excluding access to certain technologies. And that’s something that I think we need to have a very clear view on as well. And not just be a, sort of, like, industrial policy taker, but think about how we co-ordinate that because it is part of an – it is the only way that an allied Global North or allied West will be able to strike any kind of power. So, I think we have to be accepted back in, but we’re going to have to eat some humble pie.
Olivia O’Sullivan
And on that note, it’d be great to take some questions. Could we go to the woman there in the black jacket, yeah? Just wait and a mic will come to you. Thank you.
Dr Nado
Hello. I’m Dr Nado. I’m a member of Chatham House. I was a former contractor with the US Air Force. So, I bring a bi-continental perspective, hopefully. I think Mr Stephens makes a good point about development being the way forward for a Global Britain because we can’t afford not to be global these days. What doesn’t come to the table often is the role of mental health and how it plays into geopolitical and economic stability. What role do you see Global Britain having in terms of promoting mental health to achieve global – the – it’s the roots of a lot of the instability in the world?
Olivia O’Sullivan
Thanks very much. I’m going to suggest we take a few questions, given time. So, one on mental health and development. Gentleman in the blue jumper there, and the mic’s on its way. Thank you.
Adam Chenery
Thank you. I’m Adam Chenery. I am a private member here at Chatham House. My question is, kind of, if you look at the US and you look up aspects of, kind of, the British electorate, foreign policy doesn’t seem to be a priority at all and there’s a sense of nationalism still present after Trump. Going to America a lot, there’s so many people who even denies that Russia invaded Ukraine, and the America First rhetoric is still very popular amongst North Americans. And there’s a sense in Britain that Brexit is still something we have to fight for on – at least on the centre right to the right. So, my question is, is do you think the electorate are psychologically prepared to accept, kind of, the foreign policy strategy we might need? And if not, how could we convince them it is what we need, considering how powerful populism is nowadays?
Olivia O’Sullivan
Thank you. Thanks very much. Should we take one more, if that’s alright? Gentleman, here on the second row back.
Member
The first question is on the Global South. Have we lost this Global South already, looking at what’s happening with Ukraine? Other thing is on friendshoring and reshoring of supply chains, it’s going to be incredibly expensive and inflationary, can we afford that?
Olivia O’Sullivan
Thanks very much. So, three questions there. One on the, kind of, global development role of the UK with a particular emphasis on mental health and its role in global instability. One on, is the public opinion – does it support any of these, sort of, ambitions that we’re setting out? And two questions from the gentleman here. Have we lost the Global South already? And the, kind of, friendshoring that we set out, the, sort of, defence industrial co-operation the panel have been speaking about, very inflationary, can we afford it in the first place? I might go to, Liam, first.
Rt Hon Liam Byrne
Yeah, thank you. Let me take them in reverse order. So, this question about whether friendshoring’s inflationary is a really important point, which is why I think we’ve actually got to cast the stage as wide as we can. So, if we think about AUKUS, NAFTA, NATO, the EU, the Quad, Israel, Korea, Switzerland, you know, that is a big economy, that’s a $61 trillion economy. That is the size of the global economy in 2012. So, if you want to guard against, you know, inflationary risks of reshoring along that, then actually doing it within that friendshore as big as possible is probably the way to do it. And I think what you’ll find is that you will find a lot of companies now who are building, kind of, China+1 supply chain strategies, will try and begin building up operations in countries which are contiguous to that friendshore.
I’ve just come back from Morocco this morning. You can see how Morocco is working really hard now to actually cast itself as a base for quite low cost manufacturing. They’re going to export a million cars next year, you know, next to a big market like Europe. So, I think there are risks that can be managed, and I don’t think we’ve lost the Global South actually. I mean, I’ve spent a lot of time in Africa this year and, you know, amongst younger Politicians in particular, there is a really clear-eyed analysis of the risks of Chinese debt and Chinese infrastructure. There’s a real ambition to invest in human capital, along with water and renewable energy. But what they’re a little bit tired of is us, kind of, wandering along and, kind of, saying, “Do you know what? We’ve got to talk about our version of democracy, and let me give you a lecture on this,” you know.” And I actually think the human rights dialogue is incredibly important, but, you know, people are in a market for deeds, not just words at the moment. And, you know, the deeds column is going to have to get a bit bigger.
And Adam, I mean, I think that’s why, you know, the – this, kind of, post pop – I wish I’d called my remarks foreign policy for a post populist world, in many ways, because, I mean, that is the challenge. But I think it’s there actually because voters are pretty – you know, voters aren’t stupid. Voters are super realistic about what we’re going to need to do in order to get out of this trough at the moment. They know we’ve go to work closer to friends. They know how the world is changing, and if anything, you know, they recognise that this kind of populism has led us into a cul-de-sac.
Olivia O’Sullivan
Thanks very much. Would any of the – yes, Philip.
Philip Stephens
I mean, I think the point about are we psychologically prepared? And the answer is no, and – but understand – or the – are people in general, but understandably, no. If you look back, what happened after the end of the Cold War, and yeah, we had the union and the Pax Americana, or the end of history, whatever you want to call it, what governments across the, sort of, advanced democracy said is, “We can, sort of, right, give up on this geopolitics stuff.” What matters is open markets, you know, as far as trade’s concerned, the only thing that matters is efficiency and price. There isn’t – there are no systemic threats to this system.
And then first we learned, with the global financial crash, and subsequently we’ve learnt with Russia, under Putin, but also with China’s more aggressive stance. So, actually, that’s not the world as it now is and so, we’re moving back, and this is to the question too, actually cost and efficiency are going to have to come second to security and resilience. And whether we can afford it or not, that’s what’s going to happen.
We may have to pay higher prices and we may have to take cuts in living standard or improvements in living standard for it, but part of the process of getting a new foreign policy, this is where you’re absolutely right, is going to have – is to say to people, “Look, this isn’t just – Ukraine isn’t just one one-off, sort of, thing. This is the new world in which we’re now having to operate. It’s going to be a world where there’s more conflict, far less security in terms of, you know, assuming that, you know, if you buy things from here today, you can buy them tomorrow. So, we are going to have to do this.”
And so, we need a government, I would say in this country that, one, not only is, you know, suitably humble about what Britain can do, but actually starts to talk to the electorate. And there was a time, you know, ‘cause I’m old enough to remember sadly, when Politicians, Prime Ministers gave serious speeches about foreign policy and we’re going – you know, and what it meant and, you know, what was happening in the world and we’re going to have to do that again. And it won’t be easy, but it’s a very good point.
Olivia O’Sullivan
Can I just bring in Rebecca, and particularly on, you know, the gentleman’s question about, we’re, sort of, coming back to this vision of friendshoring and resilience and – but an Economist take on the – how realistic this is and how urgent it is would be useful.
Dr Rebecca Harding
Yeah, so, I’m actually going to link it with the mental health question as well because I think actually, that there’s an economic development, there’s a mental health, a social, and a, sort of, engaging the public question that actually ties these three questions together. And it’s all around what we like to call sustainability, ES&G. So, it’s the environment, it’s social and it’s governance issues that we need to be concerned about.
Now, the UK’s soft power historically has been brilliant at those sorts of things. I would argue we’ve been very good at understanding other people’s mental health, understanding other people’s positions. And we’ve, kind of, lost some of that in a far sharper focus on cost minimisation and, sort of, creating efficiencies and so on.
Now, I think we are going through a massive change at the moment, which the British public actually understands. The change that we are going through is a shift, and, you know, we can articulate it in this room. The British public will probably articulate it in a slightly different way, but we’re shifting the whole structure of the global economy because we are relying more on digital, we are relying more on a switch from fossil fuels to renewable energies. All of that is going to be incredibly distressing, from a mental health perspective, because people feel out of control of things like the climate, the economy, their position in the world, their work, etc. But it’s also going to be very, very expensive and we haven’t even started to calculate the costs that will be incurred as we move towards this new economy. And so, that does mean that we need to keep the Global South close.
Now, you look at our trade patterns with the Global South, everywhere except China, our trade has been going down. CPTPP region, we’ve gone down by around 12% over the last few years. Africa, it’s an almost cataclysmic drop, but it’s not just us that’s done that, it’s also Europe and it’s also America. So, where has the money been for the last – now we need to invest in the Global South.
Now we need the Democratic Republic of Congo because, by the way, it sends all of its cobalt to China. We – now we need it. We’re going, “Oh, should we come and invest?” And they’re going, “Well, the Chinese have actually – they don’t have all of these human rights concerns, but they are giving us money. And I know which I would rather at the moment because I’ve got economic development problems as well.” So, we have to engage with that very real problem of economic development on the ground and not be arrogant about it, but then communicate to the public that this is our position in the world that we are interdependent. So, maybe foreign policy is not what it is. It’s understanding that economic interdependency because it’s that interdependency that created populism in the first place. A sense of out of control, exclusion, the haves and have nots. That’s what we’ve seen rise, and now we need to deal with that problem.
And, I mean, I read a brilliant article – sorry, I’m going on too long, but I read a brilliant article around Christmas and it was from a German author and it was talking about the fish tank exploding in the Radisson Blu in Berlin. And it was basically saying, “Well, this fish tank was completely environmentally unfriendly. It was there to help people feel nice and calm as they came into the reception area. It had cracks. So, these fish all came from all the way around the world, but it had little cracks that had been emerging in it that nobody noticed, and suddenly it burst.” And they were saying, “This is actually our picture of globalisation. This is actually emblematic of what’s happened with globalisation. We didn’t watch what was going on, we weren’t watching it carefully. Now we need to re-engage in our foreign policy.” That that’s something, if it’s the environment and society, I think the population, the voters can get engaged with.
Philip Stephens
Can I have one sentence, just one sentence on the economics, just – which is, we’ve been importing deflation for 30 years, that’s come to an end. We’re going to be importing inflation.
Olivia O’Sullivan
I’m going to take another crop of questions. Can I go to the woman in the navy blue top at the back? Yes, it is you.
Terri Paddock
Hi, my name is Terri Paddock. I’m an individual member. I’m tempted to ask about what the panel thinks of Rishi Sunak’s plan to make the UK the centre of regulating AI. However, given how much panellists have mentioned soft power, what about – what are your thoughts on how soft power might be used against us? And I’m thinking in particular of the likes of Saudi Arabia buying up sporting assets.
Olivia O’Sullivan
Thank you very much. So, soft power and AI regulation as a sub question. Could I go to the gentleman on the end there?
Timothy Folaranmi
Thank you. So, my name’s Timothy Folaranmi. I’m a Lawyer. I’m part of my firm’s Africa Practice group and I’m also a member of Chatham House. I was really encouraged where Liam Byrne talked about Africa and obviously, Rebecca, has also spoken about it. So, what are some of the practical things that you think the UK can do? Because – so, my firm does a lot of work on the continent and we’re connected with other organisations, for example, the Norwegian African Business Association, the German African Business Association and those countries, just for example, even China aside, are really focused on Africa. They’re getting African leaders over, they give them red carpet treatment, they’re showing them that they matter, that they place value on these relationships. So, what can we practically do to compete with these, sort of, nations?
Olivia O’Sullivan
Thank you very much. I’m going to just pick out a couple of questions from our online participants as well. So, what can we practically do on Africa AI regulation and soft power, the ways in which it can be used against us? A couple of participants have also been asking a question that’s come up so many times I feel obliged to ask it. So, Kaleem Hussain, and, Anna Christina Coward, and a number of others, “Do you envision the next government revisiting Brexit, given everything we have said?” And perhaps we could keep that question to, is anything likely to change rather than what we would like to be the case? So, perhaps, Rebecca, should we go to you first and take which of those questions you most want to speak to?
Dr Rebecca Harding
Okay. So, I know you don’t – didn’t want to ask it, but the issue around AI regulation, I think is incredibly important because if you look at the trade dispute that has been going on between the European Union and the United States, it’s been around green regulation, and, you know, we tend to – there’s this regulatory superpower that exists in Europe that has been using sticks to beat its sustainability into behaviours. And if you look at the regulations in financial services now, it’s about totally reconfiguring how we measure the world completely and very, very difficult indeed.
So, it’s giving rise to what people have started to call ‘green hushing’, which is actually not talking about wonderful things that are being done on – in terms of climate, but actually doing things to say, “Well, we – we’re going to under report on this in case we’re accused.” The risk of being a reg – trying to be a regulatory superpower in AI is that we make the same mistake. Everybody goes, “Oh, well, we – there are other places where the regulations are slightly looser.” If that’s what’s being said right now, then a type of regulatory arbitrage starts to creep in.
And I’ve heard it said by some very large financial institutions, very, very recently, that in – certainly in ESG regulations, the European Union is at risk of making itself uncompetitive with the United States because the laws are more string – becoming more stringent. We don’t want to fall into that trap. So, if we go – and don’t get me wrong, I think AI does need some form of regulation, I really do. We need to have a – an open conversation about AI, but I think going out there first and saying, “We’re going to be the regulatory superpower here,” might be a bit risky. So, I’ll just focus on that.
The Africa dimension, I think the key thing is the way we go to African nations. I don’t think there’s any question. We need to do more and Africa needs to feel like it is part of the solution and not part of the problem. So, the way we’ve approached this is to say we are doing economic development and we’ve all used the phrase ‘economic development’. No, Africa has a – an intercontinental free trade area. It can do these things by itself. Actually has enough wheat and grain and fossil fuels to be able to fuel the whole economy. What we need to do is actually invest in infrastructure, and actually start competing in projects for infrastructure to allow African trade to develop by itself. And if we do that, then I think actually, we’re in a very good place in relation to Africa, because that’s certainly what organisations like the KfW are doing in Germany.
And then the final thing on Brexit, I think what is likely to happen is that it will never get back onto the front pages in quite the way it has been, because I think the position that the Labour Party’s in is that it can’t explicitly come out and say Brexit is back on the – reintegration with Europe is back on the agenda. What it can do is, do it very, very quietly, and I think that will start to happen.
Olivia O’Sullivan
Thank you, Rebecca. So, we’ve got just a few minutes left. So, I might just say to, Phillip, and, Liam, very briefly, either of those questions that you’d like to address. So, that – what do you envision might happen on Brexit, AI regulation, soft power, any, sort of, final words on those themes, Philip?
Philip Stephens
Okay. Brexit, one of our consistent mistakes has been to assume that we can talk among ourselves, decide what we want to do, and then present our conclusions to the rest of Europe, and they will happily sign up to them. Macmillan discovered, in 1962, it doesn’t quite work like that, and it’s not going to work like that again. We will rejoin when we have had a party in government for at least two terms committed to it and an opposition, which is at least ready to acquiesce in it. Because until that happens, the rest of Europe won’t have us back. They will have a closer relationship.
Rt Hon Liam Byrne
Yeah. So, Phillip, is right on this. If you look at the manifestos at big change moments in British politics, so 45/64/79/97, those manifestos each use the word ‘radical’ just once. So, you know, the tradition is when a party is coming in for a change of era as it were, it actually goes in quite softly and actually, it’s only the subsequent manifestos that then get more radical in tone.
And I just wanted to pick up the point about Africa though, because I slightly disagree with, Rebecca. I don’t think it is just infrastructure. I think it is human capital, energy and water, as much as anything else. So, it’s full spectrum of soft power. That’s what’s needed here. So, that involves money. Big things we could do, we could follow Japan’s lead in the amount of special drawing rights we’re sharing. That’s another three to four billion. We could be leading the argument for a bigger World Bank. You know, that is potentially up to 200 billion in concessional lending. We’d be – we could be co-ordinating the direct financial institutions that we have that deliver bilateral aid, Western bilateral aid institutions, invest something like $80 billion, totally unco-ordinated at the moment. So, there’s a big thing that we can do around money.
A lot of that investment is needed in human capital and in water, crucially, because of the level of hydric stress at the moment and renewable energy. But then it has got to be, you know, big expansion of English, BBC World Service, education, Chevening scholarships, which we should double, university, higher education partnerships, technical assistance and training in core institutions. Some military-to-military, because actually the Wagner Group is in about 15 countries in Africa. Counterterrorism trends are going in the wrong direction. So, there is some military-to-military assistance that should be needed, but, you know, over and above that, visits and visas. You know, the lack of UK senior Foreign Office Politicians just on the ground doing the visits, you know, frankly, I think we’re behind Russia and we’re definitely behind our partners in Europe at the moment. So, it’s not one thing, it’s just – it’s full spectrum soft power that’s needed.
Olivia O’Sullivan
On that note, we are at time and I’m going to wrap up just by picking out – you know, I think we started this evening’s panel with quite a bleak picture of the economic place that we’re in. I’m not sure we quite answered the question of, you know, “Can we afford all of our foreign policy ambitions?” But one of the themes that came out from all three speakers is, we are in a world where we very badly need very durable, pragmatic economic soft power and other relations with the rest of the world. So, there’s a way in which we can’t afford not to have enduring global relationships. And I think the panel gave us a really fascinating picture of the different ways we need to start thinking about that. And I – Liam, talking about being on the cusp of a change of era will sit with me from this evening’s conversation.
Can I end by thanking all of you, everybody online, thank you so much for your questions and I apologise if you had one and we didn’t get to you. And finally, thank you to our panel for a fascinating discussion. Thank you all [applause].