The financialization of the UK economy: Helping or hindering industrial development?

Since the start of the 20th Century the UK’s position as one of the Great Powers at the helm of a vast imperial network has declined. Once described as the ‘factory of the world’, the downfall of the country’s status in world affairs has coincided with the ‘deindustrialisation’ of the economy. From the 1970s, this process took on heightened urgency as successive governments prioritised the development of the financial services industry as the UK’s most important source of economic growth. Indeed, many view the prioritisation of ‘financialised interests’ as the UK government’s top priority – above all other social and economic goals. Consequently, the UK has been cast as a ‘weak state’, highly susceptible to the interests of the major banks in the City of London. Despite this, the need to strengthen Britain’s industrial base especially its high-technology capabilities has been placed firmly back on the political agenda in recent years as a necessary step to meet current and future global economic challenges arising from BREXIT and the COVID-19 recession. The aim of this study is to test the ‘weak state’ portrayal of the British state by examining the development of the country’s financial services sector and the impact which this has had on domestic manufacturing capabilities. My core research question is how, if at all, have the UK state’s financialized economic priorities helped or hindered efforts to support a domestic manufacturing base? My core argument is that the financialization of the British economy is deeply embedded within British institutions and has actively contributed to the demise of industry; thus, attempts to encourage reindustrialisation would require significant institutional change. By making this argument, I seek to shed new light on the depiction of the British political economy as a ‘Liberal Market Economy’ (LME) in the varieties of capitalism literature. My findings also have implications for policy debates over the UK government’s promises to revitalise its domestic manufacturing sector in the spirit of East Asia’s ‘developmental state’ approaches.