The death and life of Britain's market economy Among the reeling victims of the crash - the sacked workers, liquidated companies, beggared states - lay, for a while, the reputation of Britain's liberal economic model. Growth powered by financial services and consumerism, an indifference to all but the most avant-garde manufacturing, a workforce trading on its flexibility rather than its productivity - these characteristics seemed benign enough during the boom years, when continental social democracy was the system with something to prove. But in little more than a year - the time it took for Britain's economy to contract by 7 per cent, and its fiscal deficit to reach 11 per cent of gross domestic product - the sheen had rather worn off. Since then, politicians in the UK have competed to chart a way to a more Germanic model. When the Conservative-led coalition government took office in 2010, it promised to "rebalance" the economy with curbs on the banking sector, enterprise zones to revive the regions and grand infrastructure projects such as high-speed rail. The Labour opposition, led by Ed Miliband, has gone further by envisioning an economy of an altogether different kind, with freewheeling liberalism giving way to a kind of quasi-corporatism. If economic events can create an overnight consensus in favour of Rhineland capitalism, then they can disrupt that consensus just as quickly. The British economy is recovering with a vigour that few outside the shrewder hedge funds foresaw a year ago. Three consecutive quarters of growth will almost certainly become four when the latest figures are announced next week. Unemployment, which never soared to the peaks that were dreaded, fell by 167,000 in the last quarter, it was revealed on Wednesday. The overall level is edging towards 7 per cent, at which point the Bank of England used to say it would consider raising interest rates. It is now not so sure. Suddenly, the pathologies of the British model look more like advantages. Flexible labour laws empower businesses to do all the hiring captured in recent data. It is often overlooked that the supply-side reforms being undertaken at German insistence by the least competitive eurozone economies were completed in Britain a generation ago. What was, in the eyes of the continent, brutal liberalism is now unavoidable common sense for any country aspiring to prosper. But the reason politicians should tone down their epic visions of swapping one model for another is not that the recovery somehow proves the British system is perfect as it is. It is not. The reason is rather that this kind of change is so much easier said than done, and rarely happens at the instigation of governments. All the political parties drone on about "making things again" and revolutionising technical education. After reading Will Hutton's critique of the British economy, The State We're In, New Labour talked a good game about Japanese-style "stakeholder capitalism" in the mid-1990s. Their aspirations did not survive first contact with the reality of government. To judge by the glibness with which some talk about emulating foreign economic systems, there is a row of levers somewhere in the Treasury marked "Anglo-Saxon," "Nordic," "German," "East Asian" and so on, and it is a only a matter of ideological preference as to which is pulled. The messy truth is that a country's economic specialism is, if not ingrained, then certainly the expression of its particular history, culture and circumstances. It is path-dependent, and hard to change with anything as temporal as public policy. Political maturity lies in recognising that Britain's specialisms are in services, especially banking, and some sophisticated corners of industry. Its competitive advantages are openness, ease of doing business, world-class universities, the English language and - here is the warning to Westminster's increasingly hectoring and interfering politicians - a lack of ministerial caprice. This model carries problems, of course, but so do all the others. Germany's failure to develop its service sector looks innocuous now, when China and other rampant economies are buying cars and machine parts. But as their demand shifts to financial expertise, management consultancy, insurance and other services, an industrial specialism might seem like a handicap. All models involve trade-offs. Critics are right to quibble with the exact shape of Britain's recovery, much of which is coming from the old standbys of consumption, property and services. It makes a mockery of rebalancing, an abstract noun that ministers have the good grace to use less and less. Exports and investment, which were government's preferred route to recovery, still fail to impress. But the folly was to over-promise in the first place. The indications are that Mr Miliband is not learning from any of this. He and other Labour spokespeople have a dismal habit of asserting that Britain needs better-paid jobs, a diversified economy, a less dominant London and more world-class companies, as though nobody had thought of any of this before. Why these good intentions should succeed where so many have foundered is not obvious. If there is a lesson to learn from Germany, which is as favoured in the World Cup of economic models as in the real thing this year, it is to accept the fundamentals of your system and make pragmatic adjustments at the margins. A decade ago, thanks to low growth, the country did not have such a luminous reputation. Instead of launching an unlikely revolution, the government introduced the Hartz reforms to loosen up the over-regulated labour market and other rigidities. It was unsexy tinkering but it was effective. As Britain recovers, it should not reinvent a wheel that is finally whirring again. janan.ganesh@ft.com Twitter: @JananGanesh