Marco Rubio’s speech at the Munich Security Conference last weekend was greeted with relief in some quarters for being less bombastic than JD Vance’s aggressive speech in 2025. But in many ways, the underlying message was the same and it did nothing to dissuade the audience that the United States and Europe have fundamentally different geopolitical views and interests. Nonetheless, the speech was interesting and contained some points I agreed with, many that I disagreed with, and one in particular that touched on an economic issue worthy of further thought.
Was deindustrialisation inevitable?
Rubio opined that “Deindustrialization was not
inevitable. It was a conscious policy
choice, a decades-long economic undertaking that stripped our nations of their
wealth, of their productive capacity, and of their independence. And the loss of our supply chain sovereignty
was not a function of a prosperous and healthy system of global trade. It was foolish. It was a foolish but voluntary transformation
of our economy that left us dependent on others for our needs and dangerously
vulnerable to crisis.”
In my view, the idea that “deindustrialization was not
inevitable” is both right and wrong. In order to unpack this, we should recall
that the prevailing economic model across the Anglo-Saxon world from the 1980s
onwards was heavily influenced by the ideas of Milton Friedman and the Chicago
School. They strongly argued that markets allocate resources more efficiently
than governments, and that shareholder primacy and capital mobility were normal
features of a globalising economy. In order to make this model work, financial
markets were deregulated and capital markets became increasingly global in
scope. Firms came under strong pressure to relocate production to lower-cost
jurisdictions, automate labour-intensive processes and shed capacity that no
longer met required rates of return.
Trade barriers were lowered, partly through the completion
of the EU single market, but most importantly as a result of China’s accession
to the WTO in 2001. And who was the prime advocate of that accession? None
other than the United States. However, the result was that in a world of falling
trade barriers and increasingly rapid technological change, maintaining
high-cost domestic manufacturing often meant either accepting lower
profitability or subsidising inefficiency. Detroit’s decline was not wholly due
to the inexorable rise of Shiyan – it was aided and abetted by government
policy.
But while deindustrialisation was a consequence of
governmental decisions, voters also expressed a clear preference for this
model. Resources were reallocated towards sectors in which advanced economies
enjoyed a comparative advantage – finance, high-value services, technology and
knowledge-intensive activities – while production was outsourced to regions
which enjoyed lower costs. As a result, consumers benefited from lower-priced
goods. After the inflationary turmoil of the 1970s, voters supported policies
that prioritised price stability, efficiency and consumer welfare. To that
extent, the economic settlement reflected societal preferences as well as
political ideology. It was as much a reflection of societal choice as a policy
imposed by governments.
We are paying a price
Unfortunately, the gains from a relatively laissez faire
policy were unevenly distributed. Indeed, many of us have long argued that the
pace at which large parts of the western world deindustrialised, particularly
the UK, was always going to create the left-behind communities that politicians
now struggle to engage with. Labour was far less mobile than capital, with the
result that workers in former industrial regions could not simply retrain
overnight or relocate at negligible cost. Skills were industry-specific; social
networks were geographically rooted and housing markets were illiquid. What
appeared as efficient reallocation in the macro numbers manifested locally as
long-term unemployment, wage stagnation, deteriorating public services and
social fragmentation.
Although the economic orthodoxy of the time assumed that the
operation of market forces would generate new opportunities which would
ultimately absorb displaced labour, the duration of the adjustment process was
underestimated. In short, while deindustrialisation was perceived as
economically rational, it was never economically costless. Perhaps the real
problem was the absence of subsequent government engagement. Communities were
told that there was nothing that governments could do to prevent the forces of
globalisation ripping old industries apart and that they would have to reinvent
themselves or face the consequences. Some of the old industries were admittedly
unsustainable – coal mining for one – but governments could have done more to
cushion the blow for other industries. In the UK, the government blew the
windfall gains from oil revenues on tax cuts, rather than building a fund that
could have provided support to those communities disadvantaged by the switch
from coal to oil.
Thus, while countries such as Norway used resource windfalls
to build long-term stabilisation mechanisms, the UK opted for rapid
liberalisation with comparatively limited regional industrial policy. A similar
position was adopted in the US. Successive governments ignored the fact that
while many of the structural forces driving deindustrialisation were powerful
and perhaps unavoidable to some degree, they gave little thought as to how
society should manage the transition. This, in my view, is why you can debate
Rubio’s position from both sides. Deindustrialisation can be seen as a response
to the turmoil of the 1970s. We could have struggled on, supporting old
industries in a stagnant economy. But the good times of the late-1980s and
1990s would not have happened, and China would have industrialised anyway. Or
governments could attempt to fix things – which they did, albeit imperfectly.
Deindustrialisation and parallels with the AI revolution
Advances in AI threaten to unleash even more economic
turmoil, for which governments around the world are woefully unprepared. If this popular essay is
any guide, the AI models available today are “unrecognizable from what
existed even six months ago ... ” and they are coming for your job. This excellent
paper by Charles Jones (well worth a read) argues that “AI will likely
be the most important technology we have ever developed” and poses the
question “What if machines … can perform every task a human can do but more cheaply?”
The object here is not to debate what AI can do, nor whether it will replace
human labour (we can deal with that issue another time). The more immediate
point is that transformative technologies have the power to reshape economies
and societies at extraordinary speed. If the risks appear large enough, perhaps
we should be trying to pause or even halt the process. But is that remotely
feasible? Can you imagine the political backlash from figures such as Rubio if
governments were to act in such a way?
The deeper issue is not whether we should stop AI, but
whether we could. Once a technology offers clear economic, strategic or
military advantages, it acquires a momentum of its own. No major economy can
afford to fall behind; no government wishes to explain why it chose restraint
while rivals accelerated. In that sense, technological change is not always a
policy choice. It can become a structural inevitability. Deindustrialisation in
advanced economies forty years ago followed just such a path. It was politically
contentious and socially painful, yet in a world of global competition and
mobile capital it proved effectively irreversible. AI may represent a similar
moment. The real danger lies not in the technology itself but in the illusion
that it can be switched off. The task for policymakers is not prevention, but
preparation because history suggests that once transformation begins, it rarely
asks permission.
Last word
Precisely because the combination of technology and politics
is a process rather than a discrete choice, Rubio is wrong to suggest that
deindustrialisation was simply a matter of political will. It represented the
cumulative consequence of a policy regime that prioritised capital mobility,
trade liberalisation and financial integration. It is true that governments
could have done more to mitigate the costs, but once advanced economies
committed to that path the industrial base adjusted accordingly. At that point,
reversal would have required costs and disruptions far greater than those
incurred by continuation. What began as a series of policy choices hardened
into economic structure.
AI may follow the same trajectory. Early regulatory
decisions matter, but once firms – and indeed wider society – reorganise
production around algorithmic systems and autonomous capabilities become embedded,
restraint becomes extraordinarily costly. The question is not whether
policymakers approve of the direction of travel, but whether they are prepared
for its consequences. As of now, they are not. It is important to be aware of
this because, when future politicians tell us of the mistakes our society made,
we should remember that many of the choices made were not ours to take.
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