I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.
The connection is that you have a sector which has much higher profitability than the rest, and thus attracts further investment, talent and political influence to itself, and causes other industries to shrink, relatively and absolutely.
This may not appear to be a problem for as long as it lasts, but that profitability cannot last - either it's the windfall from a finite resource, or it's, as in the case of finance, the result of plunder/parasitism and it will inevitably crash under its own weight.
Then you have the disease: the "profitable sector" is gone, and the rest of the economy has been irreversibly damaged in the meantime.
The only solution is to capture the profits, to avoid excessive investment in the sector, and sustain the rest of the economy in the meantime.
In other words: tax it.
But it IS fundamentally the same phenomenon, except that in this case the profitability was created by regulatory arbitrage, and not by resource discovery. In the long run, we're all dead. John Maynard Keynes
In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'
The Thatcher revolution was partly a political move to put the working class in its place. So killing those industries was done as much for political reasons as for financial ones.
But more than that - the subsidies and tax breaks which maintained those industries were shifted to the City. So now it was the City which took the place of the industrial sector. While the City was nominally more profitable, and better at attracting foreign money, in real terms deregulation has been equivalent to a generous gift of cash. And before manufacturing died it was given exactly the same kinds of bail outs that we're seeing today.
So there was never any chance the City would be taxed at a reasonable rate. Not only was this ideologically unthinkable, it would also have defeated the object of the exercise - which was state engineering of an 'industrial' replacement for UK manufacturing.
The government is screwed now because there's no obvious replacement sector waiting in the wings.
In fact alternatives exist - green engineering, self sufficiency and resilience, distributed systems of various kinds, and the creative industries. But no one is pushing them seriously in Westminster yet as a replacement, and it's probably going to take half a generation of chaos before government wakes up to the possibilities.
Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government. In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'
Ahem. Royal Dutch Shell hardly counts as an "unsubsidised" company either, by any account.
Granted, its subsidies have been less along the lines of suitcases full of cash from the government and more along the lines of gun shipments to various dictators around the world. But hey, that's a kind of subsidy too.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
