Transcript: What’s wrong with Britain’s economy?

This is an audio transcript of The Economics Show with Soumaya Keynes podcast episode: ‘What’s wrong with Britain’s economy? With Sam Bowman’

Soumaya Keynes A recent essay by Ben Southwood, Samuel Hughes and Sam Bowman about Britain’s economy opens with some cor blimey statistics. Britain has pretty much the same population size as France, but nearly 20 per cent fewer homes. Between 2004 and 2021, the industrial price of energy doubled relative to consumer prices and tram projects in Britain are two and a half times more expensive than French projects on a per mile basis. This essay goes on to argue that these figures are behind Britain’s economic stagnation, that Britain has done badly over the past 15 years because it has, quote, banned the investment in housing, transport and energy that it most vitally needs. This week, we are going to ask why Britain’s economy has stagnated.

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This is The Economics Show with Soumaya Keynes. I’m joined here in London by Sam Bowman, one of the essay’s authors and founding editor of Works in Progress, the publishing arm of the payments company Stripe. Sam, hello!

Sam Bowman Hi.

Soumaya Keynes OK, so I’m gonna start with a silly question on a completely arbitrary scale. On a scale of one to 10, how much of Britain’s economic problems are because it has banned building? So one is none, this is an irrelevant issue, and 10 is that it is all of the problem, entirely that.

Sam Bowman I would say it’s probably seven. I think it is very, very, very easy to imagine that if we fix the problems with building houses, infrastructure, energy supply, and a few other things like data centres that you may or may not count as infrastructure, we would probably see very strong economic growth for at least a decade.

I think the remaining three points that I’m not including — things like public services, things like the civil service, the NHS — would be much easier to fix in a context of stronger growth. So even the things that are not directly affected by the things I think are important would be much easier to fix if we remove the blockages to building the things we need, got that kind of spurt of economic growth, and then we’re working in a context of prosperity.

Soumaya Keynes OK. So that’s interesting because you’ve answered that in a sort of prospective way, right? If we fix this problem, it would fix seven out of 10 of our growth problems. But I just want to start by looking back. When we talk about Britain’s problem with economic growth, what exactly are we talking about? 

Sam Bowman Relative to almost any trend we want to look at, for the last at least 15 years — actually, it’s a little bit more than 15 years. We’re used to talking about 2008 as the break point. And that’s understandable because we had a gigantic drop in 2008, but things were beginning to slow down even before that. Relative to other western European countries, relative to the United States, relative to the trend that we were on from the late 1970s up until around the mid-2000s, we have stagnated terribly. So compared to the trend between 1979 and 2008, we are basically about 25 per cent poorer than we could be. 

Soumaya Keynes OK. But there are two things going on there, right? Because lots of countries have stagnated since the global financial crisis or even just slightly before then, right? The US has done worse, lots of European countries. So there’s a problem that everyone’s done a bit badly and then the UK has done particularly badly. Are you trying to explain the everyone problem or the UK-doing-particularly-badly problem or both? 

Sam Bowman I think that the UK has probably done worst because it has both of the problems that both the US and Europe independently have. So I think Europe has an energy problem and has had an energy problem for around the same time that the UK has had an energy problem. The US does not have an energy problem and actually the US has, I think, grown pretty impressively over at least the last 10 years.

The US does have a housing and infrastructure problem. They do have huge problems, even worse in some cases, building things in the San Francisco Bay Area, New York City, the really, really high-value economic areas. And they have an infrastructure problem. So in the paper we talk about how, for example, Crossrail, which is now the Elizabeth line, was the second most expensive metro project ever built. The most expensive metro project was in New York City. The US clearly does have an infrastructure problem. However, what the US also has is cheap energy and it has second cities, kind of second-tier cities like Austin, Miami, the cities in North Carolina that can absorb a lot of the economic output and potential when growth in San Francisco and New York is constrained in some way. So because they’re really big, there’s a lot more room. There’s a lot more they can get wrong. The UK doesn’t have that.

London is San Francisco, New York, Seattle, Chicago all in one for the UK. Like London is everything economically right now for the UK. It shouldn’t be, but it is. So we have a huge, huge problem that we can’t get past when we constrain the growth of London. And we also, separate to that as well as the US disease of not being able to build things, we have this European disease of energy prices being very high and rising. So I think the UK is in some ways uniquely unlucky that we have both of the great problems, the great supply-side problems of the western world. And I think that is the reason that we have done relatively very poorly.

If you look at the way the UK performed from the early 1980s until around 2008, mid-2000s, we overtook France, Germany, we rapidly overtook Italy and we were converging on the US. You know, in the mid-2000s the UK was looking like a very, very prosperous, very, very rapidly growing country. And then that stopped and we’ve fallen behind and we’re falling behind since then. And so that is that relative position that I think is the thing that really matters. 

Soumaya Keynes OK. But haven’t we missed out some things, right, in terms of the factors holding back Britain’s economic performance? I mean, we haven’t mentioned Brexit. We haven’t mentioned demand issues, right? Arguably there were demand problems in the 2010s. Even on the supply side, you hear a lot about Britain’s poor management skills, you know, deficiencies in the education system. Your story seems to be all about investment and mostly about physical investment. Isn’t that oversimplistic? Why don’t you think it’s any of those other things? 

Sam Bowman I think some of those other things are important. But if you take Brexit, for example, which undoubtedly has made us quite a lot poorer, even the most pessimistic estimates don’t get you to a 25 per cent gap with where we could be. I think most of the other things you’ve mentioned are to some extent important. Demand problems, sure. I think that is true, that there was a demand shortfall at the beginning of the 2010s. But, I mean, prices aren’t that sticky and GDP growth hasn’t been that bad since then.

However, if you look at the things that are really, really highly in demand, you look at the things we could be building or could be producing for extremely high prices, we’re just not doing it. So think about someone like London. If you take an acre or a hectare of farmland in London you know, it seems crazy to talk about, but there is farmland in Greater London. If you take farmland in Greater London, like Pinner or somewhere like that, and you give it permission to have houses built on it, it will increase in value by more than 1,400 times. If you take farmland in the South East, so the kind of countryside surrounding London, and you give it permission to have houses built on it, it can increase in value by about 180 times. So I certainly don’t think that the other factors that people worry about are irrelevant, but I think that the really, really, really big price signals that are kind of staring us in the face or kind of screaming at us that need to be resolved are very very closely tied to our ability to build.

Soumaya Keynes OK. But pushback to that would be about the timing, because it does look like there was, there was sort of a step change in growth around the mid, late 2000s. But it’s not the case that our ability to build got dramatically worse around that time. So how can we be so sure that the two are linked? 

Sam Bowman So I don’t think that something really significant did change in terms of the regulation. I think that the global economy does seem to have shifted quite dramatically towards higher and higher returns to very-high-productivity cities and very-high-productivity companies and very-high-productivity people. If you look at the rise of the San Francisco Bay Area, it has coincided not radically differently from the time period we’re talking about. I definitely don’t think that not being able to build houses was the cause of the UK economy crashing in 2008. I definitely don’t think that not being able to build a train line was the reason that we had really, really poor growth in the kind of first couple of years after the financial crisis. But, if you get fired from a job, the question isn’t just, why did I get fired? The question is, what are the things I can do to now get a new job? I think it’s more important to look at what could we do now to get growth.

Soumaya Keynes OK. Well, let’s move on to building, which is your way of fixing Britain’s growth problem. So Britain is bad at building homes. It is terrible at building infrastructure and awful at delivering cheap energy. I want to go through each of those in turn. And I want to start with home building. So what is the problem? Why can’t Britain build houses? 

Sam Bowman The problem is primarily that after 1947, we moved from a system where local councils could stop development but had to pay a price to stop development to a system where local authorities can stop things from being built at zero cost. That used to be the case that when a local authority stopped you from building something on your land, they would have to compensate you for that blockage. So they had a built-in mechanism to restrain Nimbyism or restrain their kind of build-absolutely-nothing-anywhere type of impulse. They paid a price for it. After 1947, that changed and that was removed. 

Soumaya Keynes Hang on, why did they do that? That sounds like a previously good system made worse?

Sam Bowman I think most people would tell you that the postwar planning system that we still have today was brought in as a response to the huge housing boom of the 1930s, which along with providing gigantic numbers of houses, if we were building at that rate today, we’d be building more than half a million homes a year. And we think of 300,000 as being like a great ambitious target, but I mean, that’s chicken feed compared to what we were building in the 1930s, almost entirely private building, incidentally.

Many people would say that there was a good reaction to that. It built houses along main roads and led to these not very nice villages that weren’t very well planned. And that’s part of the story. But I think you also have to understand the postwar planning system in the broader context of the Attlee government’s economic philosophy, which was of central control and national guidance across the country. The introduction of the Town and Country Planning Act also came with things like building licenses. So you needed not just your local authority’s permission to build something, but central government’s permission to build something. That was actually dropped because it was pretty clear that nothing would ever get built, almost literally, if that system remained in place. But what we have been left with is a system where local residents only really feel loss from new things from being built around them and pretty much have an unconstrained ability to stop new things from being built on them.

Soumaya Keynes Wasn’t there a postwar housebuilding increase? Didn’t we get quite a few houses built after the second world war? 

Sam Bowman Most of the houses we built after the second world war were replacing houses that had been destroyed in the second world war or replacing slums and things like that. So we did build quite a lot of houses, mostly council houses. But we were not adding kind of net additions to the housing stock at anything like the kind of rate we were in the decade before that in the 1930s or at times in the 19th century when there were also very large booms in house construction. So yes, we were building houses, but we were building them mostly to replace old houses.

Soumaya Keynes OK. So the argument is that these constraints that were put in place after the second world war didn’t show up as binding immediately because there were these kind of temporary increases in social housing spending and replacement. 

Sam Bowman I would say they did show up. Private housebuilding, apart from an initial spike after the war, which was just permissions that had been granted before the war . . . Once that spike dissipated, private housebuilding was extremely low for decades. I mean, private housebuilding basically has never recovered from the Town and Country Planning Act. It has never reached the sort of levels that we saw in the prewar decade.

Soumaya Keynes OK. So essentially regulation in the Planning Act is the problem. There are too many constraints when people want to build new homes. I want to ask you about the link between that and growth, right, because, I got interested in this a little while ago and tried to dig into the evidence and, I’m convinced that we should build more housing, right? It would be, it would be good for people, the price signals are not being responded to. The issue where I found the evidence was really thin was this idea that actually if you built lots of homes that would turbocharge growth, right, because, you know, it would be nice for people, they could live where they wanted to, but it was tricky to show that that would then have a follow-on effect to sort of GDP growth. So what’s your read of that?

Sam Bowman I’m pretty convinced that there’s quite a large relationship and I’m actually interested in why you disagree. The thing to understand is that housing determines where you can live and where you live determines what job you can do. So when we talk about housing, we usually think about high house prices or high housing costs as mostly a budget problem — I can’t afford or I’m spending a lot of my income on my rent. It’s much more a problem because it stops you from being able to move somewhere that might be economically prosperous and might be able to give you a much better job. And that means that you don’t get a pay rise initially and you don’t get the kind of combinations that lead to new firms and new innovations and things like that.

There are a few papers that use different approaches to try to estimate how big the return to people’s wages would be if people could freely move to places like the San Francisco Bay Area, San Jose, San Francisco, or places like New York. There’s a Duranton and Puga paper that shows, or the result of the paper — it may be wrong — but the result of the paper is that US GDP per capita could be something like 20 to 25 per cent higher if there were no constraints on building in the United States. There’s a different paper by David Card, I think, that tries to estimate the wage premium that comes from moving to a city. None of those estimates try to estimate the dynamic effects of just having more people in the same place leading to more innovation and more unconventional breakthroughs and things like that.

But I think there is some evidence, sort of limited evidence from particular sectors that shows that there are really, really, really large returns to concentrations of people that are in similar work, but different work in certain sectors. So in software, there seemed to be pretty big returns to people being around each other, which is one reason that people still move to San Francisco, even though there are lots of reasons not to. Advertising seems to be incredibly density-geared. Being next to other ad firms is amazingly valuable to advertising firms and they’re willing to pay huge amounts of money to be around each other.

In other industries, that’s not the case. In manufacturing, there’s not a massive wage, massive wage return or massive return to being clustered with, usually with, very closely with other manufacturers, and I think that’s why we see different economic geography in different countries.

I think, you know, it’s not a coincidence that a country like Germany that historically has a very strong manufacturing sector is very spread out around the country. Whereas a country like the UK which is very skills-and-intangibles-emphasised is very, very, very concentrated around London and a couple of other cities.

I think that the aggregate effects of allowing more houses to be built can be seen just in the gap between the value of housing in the UK and the price of building the housing in the UK. If we want to estimate how valuable or how much demand there is for this to be built, then we just need to look at the gap between how much would it cost to build if there were no constraints and how much does it cost to buy a house now. And the gap is enormous. The gap is, I mean, trillions of pounds. It’s possible that that’s all amenity value, but I’m not convinced. I think that, I do love living in London, but I don’t think that’s the main reason that people want to move here. I think people mainly want to move here because it’s good for their professional life.

Soumaya Keynes OK. Yeah. I mean, there’s a lot going on here. I mean, I guess one issue is the studies of San Francisco and agglomeration there may not apply to London, where, for example, we just have much, much better public transport links. Many more people can access jobs in London already than they can in San Francisco, which is both housing- and transit-constrained. The other thing is that the Duranton and Puga paper that you mentioned, they do talk about congestion costs, right? So they warn that like, sure, we can do these crazy thought experiments where everyone can move to wherever they want, but actually you’re gonna get pretty high costs in terms of crowding and, you know, if the infrastructure doesn’t keep up, and so on and so forth. So that’s quite an important, I think, asterisk to that finding.

But the one that kind of most worried me when I found it was there is an OECD study looking at Britain in particular, right? Not the US that most of these other studies look at. And it found that it would take a 10 per cent increase in the number of employed people per acre in a British city for productivity to increase by 1 per cent, right? So that’s a large increase in the density of people and not a massive increase in productivity. And this paper also found that that was a lower, a smaller effect than other big cities. And so that just made me a bit worried that actually, yes, directionally, I’m completely with you that I do think this would be good for the economy and good for people. I’m just not sure about the magnitudes that we would see.

Sam Bowman A 10 per cent increase in density leading to a 1 per cent increase in productivity sounds amazing to me. I mean, London is one of the least dense major capital cities in the western world. London should be massively denser. Like, if you look at, if you look at central London versus somewhere like central Paris, London is extraordinarily sparsely populated. And it’s also not the case that more density would mean worse living standards.

The nicest parts of London, places like Marylebone, Bloomsbury, are also the densest parts of London. We could make London a much denser place with many, many, many more people, millions more people, and get, it sounds like, quite significant productivity increases by enhancing the quality of London as a place to live. You look at somewhere like Cambridge, and I think it’s worth stressing as well that most of the solutions to housing scarcity also mean that we get more of other kinds of things, not really transit infrastructure, but lab space, you know, 1 per cent of the lab space in Cambridge is vacant at any given time. You compare that to somewhere like Boston or Cambridge, Massachusetts, they have tens of thousands of square feet of lab space free at any point in time. Actually hundreds of thousands. There’s a gigantic difference in the availability of space generally in places like London, Oxford and Cambridge as well, compared to peer places in the US. And San Francisco, I agree, is a kind of limit case, although San Francisco also has Oakland, Berkeley, San Jose. So I mean, the San Francisco Bay Area is very, very large, very, very spread out. There is a lot of housing. But the San Francisco Bay Area is spread out, has decent roads. You can commute from Oakland to San Francisco and I think I completely agree about transit infrastructure, transport being incredibly important. But actually roads kind of . . . I’m not a huge car fan and I’m not a huge road fan but roads and cars are a pretty good way of getting agglomeration.

If you look at Alain Bertho, the French urbanist, I mean, he looks at travel-to-work times in European cities versus in places like Dallas, Texas, and we think of these as being kind of nightmarish, but point to point getting from a place on the outskirts of Dallas to a job in Dallas versus an equivalent journey in Paris or in a western European city, it’s often quicker to use a car despite the gridlock and despite the traffic jams because the walking time between the transport stops adds so much extra time to travel. So mass transit is great, but I don’t think that we should be too complacent about well, London has a really good road network, sorry, a really good rail network or really good underground network. Therefore the problems that, say, the US has don’t apply to us.

Soumaya Keynes OK. Well I for one am looking forward to many, many more neighbours in London. Can I now ask you about the next bit of your essay, which is infrastructure, right, because it’s not just housebuilding that you say is a problem with Britain. What’s the problem with infrastructure? Why is Britain so bad at building it? 

Sam Bowman The first order problem is that we don’t build very much of it. We just don’t have anything like the infrastructure for most of the country that we should. London really does have amazing infrastructure. London is really world-class in terms of infrastructure. I think even London lacks for a lot of things that it would like to have, but we’re doing really well.

If you look at kind of proxies for demand, obviously most people don’t pay for most of the infrastructure they use, but we can look at things like road congestion and roads outside of London, especially in places like Leeds, Bradford, Manchester, the kind of high-potential cities of the rest of the UK. Road congestion is absolutely terrible in these places. It’s extremely difficult to get from one point to another or to cross a city in a way that now in London you can get on the Elizabeth Line in Essex and be on the other side of London in less than an hour. All of that, that demand for the existing infrastructure is a sign that there is a huge demand for more infrastructure within cities and possibly across cities. So why don’t we build it?

The main reason, I think, we think, is that it’s really, really expensive. And the reason for that, we think, is a combination of on the supply side, we don’t really have very good mechanisms for keeping costs down, and we don’t have good incentives for people running the projects to keep costs down. And on the kind of permitting side, we have stacked the deck very much in favour of objectors. And we have made it very easy, both in terms of the letter of the law and in terms of the politics of infrastructure, to stop things from being built. So, my favourite example is a tunnel that is proposed to be built under the Thames called the Lower Thames Crossing. This is between Essex and Kent. It would join up England’s two busiest seaports. It would be very, very valuable, I think. The planning application for the Lower Thames Crossing so far has reached 360,000 pages, and the cost of the planning application has reached £297mn. For context, the longest tunnel in the world costs less than that, actually less than half of that, to be built in Norway. It’s not a completely clean comparison because they weren’t building underwater, they were building through rock so, you know, it would be a cheaper project, but the planning application is double the cost of actually building a tunnel in another country.

Our argument is that these two problems of bad financial management and power, a lot of power for objectors interact in a really bad way so that as a nationally run or nationally funded infrastructure project, you will constantly try to appease objectors by, for example, in the case of HS2, burying a quarter of the line to avoid arguments. And you will try to make the project you’re building absolutely the best project it could possibly be, not the best-value-for-money project it could possibly be. And so we end up with a situation where the infrastructure that we do build is amazingly expensive. Crossrail: second most expensive metro line ever built per mile. HS2: by far the most expensive high-speed rail line ever built assuming it’s completed. And because those projects end up being so expensive we just don’t do many of the other ones that we probably should do and would do if they were cheaper.

Soumaya Keynes What is the problem with energy? We’ve done homes, infrastructure, now energy. 

Sam Bowman Energy’s very expensive. Industrial energy has grown in price by 150 per cent in inflation-adjusted terms since the early 2000s. The reason is, number one, we moved off coal and gas for good reasons. We should decarbonise. It’s very important that we do that. Number two, we moved on to very expensive forms of clean energy: wind and solar. And number three, we have not made it affordable to build what could be a much less expensive form of clean energy, which is nuclear. So those three factors combined have led to final user costs, retail costs that have risen and risen and risen. 

Soumaya Keynes On this energy point, is the argument that high energy costs are effectively crippling manufacturing, where the cost of energy is more important — is this a sectoral argument? Or are you really arguing that high energy costs are crippling the UK’s massive services economy? 

Sam Bowman I think it’s a bit of both. We should remember that there are, since about 2016, there have been subsidies to energy-intensive manufacturers to try to alleviate some of the costs. Not all by any means, but some of the costs that we’re talking about. And since earlier this year, there have been very, very significant subsidies to high-energy intensive users. But it is very, very clear that energy-intensive industries, because all of these things are time-limited. If you’re looking to expand the plant or something like that, you don’t have any certainty that the lifetime of the plants will have this support or this kind of subsidy indefinitely. And if we look just in Europe over the past few years and the Draghi report, it’s very clear that higher energy prices have led to really significant reductions in output in some energy-intensive sectors.

But I think that the problem is broader. I think that the problem relates to entry — smaller companies that cannot get any subsidy or any kind of support, not being able to enter the market. I think the energy costs probably do hold back lots of services-based sectors. We think of services as being, you know, just somebody in a room with a laptop. But I mean, data centres count as services. There are lots and lots of things around biotech that are not necessarily kind of energy-intensive. They’re not heavy industry, but they use a lot of energy. Energy costs are a large component of their costs.

I don’t think that high energy costs are the reason Britain hasn’t deindustrialised. I don’t think that had energy prices remained where they were . . . because I don’t think the UK was doing very well on things like manufacturing in the early 2000s. So I don’t think the energy costs are the only part of the story. But I do think that they are a necessary condition to having a successful manufacturing sector and having a successful sector in lots of the kind of light industry that requires energy but isn’t kind of living or dying on the basis of energy. 

Soumaya Keynes But again, aren’t you assuming that manufacturing is somehow a key to sustained productivity growth? 

Sam Bowman I think there’s pretty strong evidence, actually, that high energy costs lead to slower trend growth. Slower trend growth is really, really important. I don’t think that we should look at any particular sector of the economy and say, ooh, this should be 50 per cent larger, 100 per cent larger. But we do have some incredible manufacturers here. We do have an incredible history of producing things. And energy costs have risen so much in the last 20 years that it’s kind of amazing that any of them are still around. The ones that we’ve got are really high-value-add, and it’s, I don’t think, improbable at all that if energy costs were lower, we could have quite a lot more that were pretty value-add. There are other countries like Switzerland, Sweden, the United States, where lower energy costs coincide with larger and much more high-value-add manufacturing sectors, and I don’t think it’s unlikely at all that the UK could have that.

Soumaya Keynes OK. So a kind of probabilistic endorsement of a stronger manufacturing sector. Well, that’s fine. Look, I want to throw to a break now. And when we get back, I’m gonna ask you what the government should do about all of this. 

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We are back from the break. OK. Suppose you are in charge. What are your top three policies for getting Britain building? And I’m talking unfettered power here. Nothing pesky like parliament to deal with in your ideal world. 

Sam Bowman In my ideal world, I would go back in London to the system of zoning and planning that we had at the end of the 19th century, where you can basically build anything if it’s safe and if it doesn’t rise above eight storeys. So I would basically say we could massively up-zone London. And I think that we could probably double the size of London if we did that. Then London should have 20mn people in it. It’s crazy that it doesn’t. That would be number one.

Number two, I would make its significantly easier for private construction of infrastructure to happen and for local authorities to build and manage and run infrastructure. And I think it’s really significant that the heyday of the tram in England was when local authorities owned and operated tramways and often ran them at a profit and used them to cross-subsidise some of the other things they were doing. The road I live on used to have one of England’s busiest tramways on it. It’s now a pretty kind of congested main road. I would love to be able to go back to that. And I think that if the private sector was given essentially a very, very clear set of permissions, if you can raise the money, you can build, own, operate whatever you want to build for 30 years, then the infrastructure transfers back into public hands because you’ve been given a very big privilege by the state. And that will get us a lot more railways. That’s how most railways were built up until the 20th century, and I think probably things like tramways being built by local authorities is probably the way we would see that happening.

Number three for energy, I would aim to create a single approval mechanism for nuclear reactors so that if you have a single, if you have a design, we consider it safe, you bring it, we give it incredibly rigorous stress testing, we make sure we are very, very content that it is safer than any other form of energy apart from, say, solar . . . Safer than wind, I think would be a reasonable threshold. More people die already from wind turbine accidents than have ever died from nuclear accidents, so I don’t think that would be a hard threshold to achieve. And then you can build as many of them as you want as long as they’re away from population centres.

And I would say if we did that, we would see mass production of nuclear reactors rather than this very sporadic approach that we’ve taken with Hinkley and Sizewell C. We would probably guess foreign producers coming in. Kepco is the Korean nuclear authority, and they built in Korea at about a sixth of the price that we built for. And they’re building in the Czech Republic at about half the price that we’re building for. And I would like to be able to just say: if it’s safe, here’s your approval. And most of the small modular reactor companies are really trying to do that. That is what, that is why they’re building and the way that they’re building. There’s not a particular efficiency to building small. There’s a regulatory efficiency to getting approval once. And I would like to be able to give that approval to larger reactors, too. 

Soumaya Keynes So I struck in your essay and also a lot of what you’ve been saying that really it’s the private sector that you want to sort of step in and deal with this problem. Now, I think it’s fairly obvious that, you know, the planning system, the regulation is a major constraint here. But there are many who would say, isn’t the problem also that over the past six years, the government just hasn’t spent enough on some of this infrastructure, social housing, new railway lines, roads, you know, energy infrastructure, that kind of thing. Do you think there is a role for the state to do more? Or really is it the private sector that should be doing pretty much all of this? 

Sam Bowman I mean, there’s definitely a role for the state here. I think the reason that the state has not built more is that state projects suffer from exactly the same cost problems that private projects suffer from. And if a state doesn’t build many houses because houses are really expensive to build . . . Land is just as expensive for social housing as it is for private housing. I think that for some things like infrastructure, local infrastructure, it makes a lot of sense for local authorities to oversee, own, manage, run the projects. And I do think it’s a fairly kind of notable thing that France, which is really the only country that has managed, at least in the west, to nuclearise itself, did so via a state-led program in the 1970s and ‘80s.

Personally, I think that there’s no real need for the state to do a lot of these things. Most of the railways we have were built by the private sector in the 19th century. You know, most of the houses that we have built are private-sector-built. Now, and I think that there isn’t really a need for the state to build houses. There is such a strong price incentive for the private sector to build them if we allow them to be built. I don’t mind the state building some houses. I would just like it to do so at a low price so that they’re affordable to the state as it builds them. And I would like the private sector to be able to do that too. And I suspect if we had the same kind of permissive approach to building that we had in the ‘30s or the 19th century, we wouldn’t really need the state to do a massive housebuilding programme.

And on nuclear, I think it’s probably the biggest area where there probably is still going to be a role for the state and still going to be a need for the state because the capital costs are so enormous, there’s so much risk in sinking, I mean, hopefully not tens of billions of pounds into a project, but at the moment that is the kind of price that we’re paying. And it’s very hard to see a private sector investor being willing to take that kind of risk on. I would like to get costs to a point where nuclear is cheap enough that private sector investors are happy to do it. But I don’t think we’re close to that yet. 

Soumaya Keynes OK. Final question, also about the state and state policy. We had the Budget very recently, but also lots of noises about planning reform from the Labour government. How optimistic are you that Britain is gonna move in the right direction on this? What’s giving you hope? 

Sam Bowman What’s giving me hope is the need to do it. The big takeaway I had from the Budget was the economic growth assumptions that the government is using are so bad. You know, we’re talking about 1.5 per cent being the level of growth towards the end of the decade. I mean, that is really poor. When you think about the hole we’re already in. So the need both in fiscal terms, in terms of people’s living standards and in terms of just the political sell of this government to get growth makes me feel like maybe they will push and kind of be creative in ways that they might not be otherwise.

I think that the government and the Labour party, when it was in opposition, they have talked about the need for growth a lot. They talked about housing as the number one way of getting growth. That’s really, really promising. Where I worry is in a kind of politically naive approach to getting things built. So far, their plans seem to mostly be around forcing houses on places that don’t want houses, you know, via housing targets. I think that’s never gonna work. It doesn’t seem to me yet that the government is trying to fix the underlying mechanisms and incentives that might make it so that people are actually OK with more houses being built around them rather than saying, well, you know, this area needs to have this more thousand houses on a green field near them. It just creates issues for opposition politicians to latch on to and campaign on. And that, to me, just feels like a very broken kind of approach. So they need to do something differently. And so the reason I’m optimistic is that I think they might have to. 

Soumaya Keynes OK. Well, let us end on that optimistic note. Sam, thank you so much for joining me. 

Sam Bowman Thank you. 

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Soumaya Keynes That is all for this week. You’ve been listening to The Economics Show with Soumaya Keynes. If you enjoyed the show, then I would be eternally grateful if you could write and review us wherever you listen.

This episode was produced by Edith Rousselot with original music from Breen Turner and sound engineering by Joe Salcedo. It is edited by Bryant Urstadt. Our executive producer is Manuela Saragosa. Cheryl Brumley is the FT’s global head of audio. I’m Soumaya Keynes. Thanks for listening.