ANDREW ADONIS: State aid won’t provide a solution when it comes to Brexit

These days may soon return, if Dominic Cummings’ latest wheeze takes off. For what’s really at stake in the sound and fury of the latest Brexit negotiations is the right of the British government to use ‘state aid’ to build national champions to compete with the EU and the US, starting in the tech sectors.

Remember that ‘oven-ready’ deal? It turns out to be inedible. As some of us didn’t stop saying even after last December’s election, the only oven-ready deal is to return to the EU on the terms before we foolishly left with nothing but a transition period into a void and the promise of no hard border in Ireland – a treaty commitment on which Boris Johnson is now threatening to renege.

The Irish already knew that Johnson cares little for the Good Friday Agreement and not much more about Northern Ireland remaining part of the United Kingdom. He boasts the title ‘Minister for the Union’, but his every strategic action is calculated to undermine it both in Ireland and Scotland.

It is nonetheless strange that an avowed Tory free marketeer should use Ireland as a bargaining chip for opting out of the EU regime limiting state industrial subsidies. Many Tories applauded last year when, to the intense irritation of Merkel and Macron, the European Commission halted the merger of Siemens and Alstom, designed to create the rail manufacturing equivalent of Airbus.

Although sceptical about state action to create ‘global champions’, I would have allowed this merger, given the strong international rail manufacturing market including the formidable Hitachi, which now has a factory near Nissan’s in the north east of England.

The reason, as so often with Johnson, is Cummings, who has visions of state-sponsored tech companies doing wizard things in competition with the ‘sluggish’ French and Germans, maybe even taking on American behemoths by being fleet of foot. Names of tech start-ups like Chatterbox, Elvie, Streetbees and Zego are mentioned in hushed tones by No.10, as Treasury officials desperately scroll their iPhones to find out what they do and which of Dom’s friends are involved.

As so often with Cummings, there is a relevant idea here (strategic support for promising start-ups) but enveloped in a self-defeating context (Brexit and competing with the EU) which will end up breaking the policy as the two collide.

Britain has been poor at industrial policy ever since the war. Partly this is because, as one wag put it, in the 1970s it wasn’t a case of governments choosing winners so much as losers like British Leyland choosing the government.

The one post-Brexit attempt so far at an industrial policy – setting up a UK state-backed competitor to the EU satellite system Galileo – has already gone down in flames at huge public expense.

To be fair, it wasn’t all bad in the past. The nationalisation of Rolls-Royce turned out OK and Britain led Europe’s mobile phone revolution thanks to spin-offs from state-owned defence electronics companies. There are plenty of cases of the French, Germans and Italians getting it wrong before the EU prohibited state aid.

The problem isn’t so much the pros and cons of state industrial support, but the reality that what really matters in terms of state action is the maintenance of a sound and stable framework of trade, exchange rates, and laws on mergers and acquisition to prevent fly-by-night merchants or foreign governments, like the Chinese, playing fast and loose with home grown talent.

On all these dimensions, Brexit is a disaster layered upon an already weak British regulatory system. All those great German and Japanese manufacturers who set up their factories in Britain in the 1980s and 1990s did so because of British membership of the EU. They want Britain to stay in the EU, not to argue with the European Commission about the meaning of laissez-faire.