Derisking, Industrial Strategy and the British Economy

Derisking has been more recently popularised by the work of the economist Daniela Gabor to denote new strategies to achieve economic development in the Global South¹, and secure environmental transformation in the industrialised Global North². Derisking is defined by Gabor as the process by which the state ‘escorts’ capital managed by institutional investors into new ‘asset classes’ through the creation of ‘safety net[s]’ that protect ‘profits from demand risks’ and ‘political risks that… threaten cash flows’³. Derisking can be said to involve the state in the twin process of (i) creating assets for investment by international capital and (ii) introducing structures and policies to protect investment into these assets (and profits arising) from market-based sources of risk.

Though the concept of derisking has only recently emerged in academic literature it offers a useful vehicle for identifying the longer-running transformation in state-market relations in Britain starting with the economic reforms initiated during the Thatcher era. For example, the economic policy of privatisation, which led to the creation of new investable assets, can be interpreted as an early manifestation and institutionalisation of a creeping derisking logic in the British economy since the mid-1970s which accelerated after the election of Margaret Thatcher and the Conservative party in 1979. The argument of this policy brief is that if derisking denotes the state’s active role in creating investment opportunities and insulating private capital from key sources of risk, then the British experience since the late 1970s provides strong evidence of the framework’s explanatory value. Britain, in my view, represents for the concept of derisking potentially one of its most developed expressions in the advanced industrial world.

This policy brief is the second of three that examine the prospects for industrial strategy in Britain. In the opening brief it was argued that Britain has lost capacity within its state to design and deliver industrial strategy; this loss of capacity is a product of the depoliticisation of the British economy that has left the “British state bereft of civil servants with the necessary skills, knowledge and experience to design an effective industrial strategy to which the private sector will respond”⁴. This brief situates the depoliticisation of Britain’s economy in its wider context of the move towards a derisking logic in Britain’s economic growth model after the election victory of Margaret Thatcher and the Conservative party in 1979. It continues to sketch out the contours of derisking in British capitalism, especially the promotion of excessive financialisation, before finishing with an exploration of how an industrial strategy directed towards the everyday economy might provide an important element of a new economic model for Britain.

The derisking logic within the British economy developed through three successive and overlapping phases after 1979. This interpretation challenges conceptions of Thatcherism as a simple withdrawal of the British state from economic life. Rather, instead of retreating from the responsibility of economic management, the British state progressively reoriented its activities towards the creation, maintenance, and protection of markets and investable assets. Across each phase, the role of the British state evolved from that of owner and producer towards that of market-maker, regulator, and risk manager, facilitating new opportunities for private capital accumulation while increasingly insulating investors from economic and political uncertainty.

The first phase of derisking involved the creation of significant new asset classes through the transfer of large sections of British industry from public to private ownership. Privatisation was not simply a process of asset disposal having been preceded by extensive state-led restructuring designed to render industries attractive to investors. In sectors such as steel, the state absorbed substantial economic costs through investment and assumed the social costs associated with industrial restructuring and workforce reductions. During the privatisation process itself, shares in newly restructured firms were frequently sold at discounted prices to stimulate investor demand and broaden share ownership. Following privatisation, many sectors have benefitted from the creation of regulatory frameworks that deliver relatively stable and predictable revenue streams. Through these processes industries such as utilities, transport, and telecommunications were transformed into attractive investment opportunities, the British state playing a central role in shaping the conditions under which private accumulation could occur.

Instead of retreating from the responsibility of economic management, the British state progressively reoriented its activities towards the creation, maintenance, and protection of markets and investable assets. Across each phase, the role of the British state evolved from that of owner and producer towards that of market-maker, regulator, and risk manager.

Whilst this first phase remained ongoing, a second phase emerged during the mid-1980s with the introduction of compulsory competitive tendering in local government and the subsequent marketisation of public services thereafter. Activities previously undertaken directly by public authorities increasingly became subject to contractual competition and private provision. Over time, this logic expanded beyond local government services into areas such as social care, waste management, probation, welfare-to-work programmes, and other functions of the public realm. The significance of this transformation was not merely the outsourcing of service delivery but the conversion of public expenditure into predictable revenue streams capable of supporting private investment. In this respect, the state increasingly acted as a market-maker, constructing and regulating markets in public service provision while underwriting demand through long-term contractual commitments. These developments facilitated the growth of large multinational outsourcing and service-management firms whose business models became closely tied to state expenditure and public procurement.

The third phase of derisking centred upon the transformation of national infrastructure into an investable asset class. Emerging through early experiments with public-private partnerships and subsequently institutionalised through the Private Finance Initiative under the Major and New Labour governments, infrastructure policy increasingly sought to mobilise private finance for the provision of public assets. Under these arrangements, investors were offered long-term, predictable returns supported by contractual commitments from the state, significantly reducing many of the commercial risks traditionally associated with infrastructure investment. Roads, hospitals, schools, energy systems, and other forms of national infrastructure were increasingly reorganised as financial assets capable of generating stable cash flows over extended periods. The role of the state consequently shifted further from direct provision towards the structuring and management of investment opportunities, creating the conditions through which institutional investors could participate in infrastructure development whilst being insulated from many of the uncertainties associated with market competition and fluctuating demand.

Taken together, these three phases reveal a progressive deepening of the derisking logic within the British economy. What began as the privatisation of existing public assets evolved into the marketisation of public services and ultimately the financialisation of infrastructure itself. In each case, the British state played an active role not in withdrawing from economic management but in creating new asset classes, reorganising markets, and mitigating risks for private investors. From this perspective, derisking represents not a recent departure in British economic policy but a long-term process through which successive governments have sought to sustain growth, attract investment, and reproduce an increasingly financialised economic model.

Derisking appears successful. The City of London remains a major financial centre, Britain continues to attract significant foreign direct investment, and assets markets perform strongly by providing strong returns for investors. However, particularly following the 2008 financial crisis, the limits of derisking as a model of economic development have become increasingly apparent. Despite successive governments continuing to promote investment-led growth by engaging in derisking practices, economic performance has remained persistently weak. Productivity growth has stagnated, real wage growth has been subdued, and regional inequalities remain deeply entrenched. Whilst the British economy has continued to attract substantial volumes of private capital, the translation of investment into broad based improvements in productive capacity and living standards has proven increasingly elusive. The result is a growing disconnect between the objectives that have justified derisking and the economic outcomes it has delivered.

These shortcomings are closely connected to the increasingly financialised character of the British economy. A central feature of the derisking model has been the liberalisation of markets and the creation of assets capable of attracting internationally mobile capital. Successive governments have assumed that foreign investment would increase competition, improve efficiency, and compensate for weaknesses in domestic investment. Indeed, from the Thatcher era onwards, the attraction of international capital became an explicit component of Britain’s economic strategy, with policymakers presenting openness to investment as a source of economic renewal. Yet this process has contributed to the growing internationalisation of ownership across significant sections of British industry, infrastructure, utilities, and public services.

The role of the state consequently shifted further from direct provision towards the structuring and management of investment opportunities, creating the conditions through which institutional investors could participate in infrastructure development whilst being insulated from many of the uncertainties associated with market competition and fluctuating demand.

The problem is not simply that foreign ownership has increased, but that the British economy has become progressively more dependent upon external sources of capital to sustain growth and investment. Rather than fostering the development of domestic productive capacity, derisking has often prioritised the creation of investable assets and the maintenance of conditions attractive to investors. This has generated a form of structural dependency in which economic policy becomes increasingly oriented towards the requirements of capital mobility and investor confidence where Britain’s persistent current-account deficits have increased the importance of maintaining net capital inflows, while the growing internationalisation of ownership has further strengthened political incentives to prioritise investor confidence. Consequently, even as governments continue to proclaim that Britain is ‘open for business’, the scope for pursuing alternative development strategies becomes progressively constrained.

Moreover, there is growing evidence that derisking is becoming less capable of delivering results even on its own terms. Whilst governments have continued to pursue policies designed to attract investment through regulatory reform, fiscal restraint, support for financial markets, and the maintenance of London’s position as a global financial centre, the relationship between capital inflows and sustainable economic growth appears increasingly weak. The challenge facing Britain is therefore not an absence of capital, but the limited capacity of a highly financialised growth model to convert investment into productivity growth, rising living standards, and long-term economic renewal. There are two potential answers as to why this might be happening: derisking switches investment towards existing assets and revenue streams rather than creating new productive capacity in the economy, or derisking encourages the extraction of rents over productive investment, simultaneously privileging returns on assets over invention and innovation.

Either way, and in consequence, the British state risks becoming embroiled in a Faustian pact. Faced with an economy that remains structurally reliant on external financing and constrained sources of growth, governments are incentivised to expand the supply of investable assets and de-risked opportunities to attract and retain international capital. While this may help sustain investment, growth, and fiscal revenues in the short term, it can also deepen the very dependencies that make derisking strategies appear necessary in the first place. In turn, the continued derisking of the economy risks further weakening state capacity to design and implement alternative industrial strategies, making departure from the derisking model increasingly difficult to engineer.

This dynamic is particularly significant where the acquisition of British firms by internationally mobile investors results in strategic decision-making, high-value functions, or future investment being located elsewhere. Although foreign investment can generate substantial benefits, sustained patterns of ownership and control flowing offshore may reduce opportunities for domestic agglomeration, technological upgrading, and skills formation. The danger, therefore, is not that derisking inevitably produces economic decline, but that it gradually entrenches a growth model in which the pursuit of external international capital takes precedence over the development of national productive capacity, narrowing the range of alternative economic futures available to Britain.

There is growing evidence that derisking is becoming less capable of delivering results even on its own terms; the relationship between capital inflows and sustainable economic growth appears increasingly weak. The challenge facing Britain is therefore not an absence of capital, but the limited capacity of a highly financialised growth model to convert investment into productivity growth, rising living standards, and long-term economic renewal.

A route beyond derisking would not necessarily require a return to the industrial strategies of the post-war era, nor the pursuit of a technologically driven reindustrialisation centred on subservience to global artificial intelligence conglomerates. Instead, it should involve reorienting industrial strategy towards the foundational economy⁵. Such an approach would prioritise improvements in the productivity, quality and resilience of foundational economic sectors that directly shape living standards and economic security⁶. As David Edgerton argues, the challenge facing Britain is not simply one of innovation at the technological frontier, but of improving the efficacy and performance of the sectors on which most people depend everyday⁷. An industrial strategy directed towards the foundational economy would therefore seek to improve care services, public transport, utilities, housing and local service provision, whilst strengthening workforce skills, raising labour standards and embedding ownership and control more firmly within local economies.

Crucially, such an approach would challenge one of the central assumptions of the derisking model that economic development is best achieved through the creation of investable assets for internationally mobile capital. The foundational economy perspective instead begins from the proposition that economic success should be judged by the quality, accessibility and sustainability of essential services rather than the volume of capital attracted into asset markets. In this sense, a foundational industrial strategy would seek to shift the focus of economic policy away from asset creation and rent extraction towards the enhancement of productive capacities embedded within places and communities. Rather than asking how public assets can be made more attractive to investors, it asks how economic institutions can better meet collective needs whilst generating secure employment, local economic multipliers and more equitable forms of development. This would represent not merely a new industrial strategy, but a fundamentally different conception of what economic development is for.

1. ‘The Wall Street Consensus’, Daniela Gabor, Development and Change, Volume 52, Issue 3, May 2021, pages 429-459.

2. The (European) Derisking State, Daniela Gabor, Stato e Mercato, Issue 1, April 2023, pages 53-84.

3. ‘The Wall Street Consensus’, Daniela Gabor, Development and Change, Volume 52, Issue 3, May 2021, pages 429-459.

4. Power without Capacity? Depoliticisation, the British State, Industrial Strategy and AI, James Silverwood, Policy Brief, May 2026.

5. Manifesto for the Foundational Economy, Justin Bentham et al, CRESC Working Paper No. 131, November 2013.

6. Placing the Foundational Economy: An Emerging Discourse for Post-Neoliberal Economic Development, Bertie Russel et al, Environment and Planning A: Economy and Space, Volume 54, Issue 6, May 2022, pages 1069-1085.

7. Why the Everyday Economy is the Innovation Labour Needs, David Edgerton, The Political Quarterly, Volume 93, Issue 4, October / December 2022, pages 683-690.