Our weak econony: Celebrate Cool Britannia, but don't ignore the rust

Britannia's new "cool" is a thin coat of paint hurriedly slapped over the rusting hulk of the economy inherited from the Conservatives. At any rate, this is the implication of the "growth, employability and inclusion" conference hosted by Gordon Brown and David Blunkett for their fellow ministers in London yesterday - and it is probably an accurate conclusion. But Brown's and Blunkett's gritty realism about the need to modernise the British economy risks being drowned out by a cacophony of hype about the swinging creative industries and all the rest of what could be called "Dome-land".

To give the Chancellor his full due, he is dourly impatient of any chat about Cool Britannia. He is more in tune with the following passage from Labour's election manifesto: "Many of the fundamentals of the British economy are still weak. Low pay and low skills go together: insecurity is the consequence of economic instability; the absence of quality jobs is a product of the weakness of our industrial base; we suffer from both high unemployment and skills shortages." This is as true now as it was a year ago when Labour politicians started drafting it.

Unemployment is indeed at its lowest now since 1980 - if you forget about the people who have been defined out of the headline figures. Remember them and the improvement in the numbers at work has been far less impressive. As Mr Blunkett said at the weekend, there were only 5,500 unemployed young people in 1965, when he was 18, whereas now there are 118,000. He listed a whole catalogue of dispiriting then-and-now statistics.

It is true that this country is enjoying a genuine flowering of activity in cutting-edge, creative industries from fashion to biotechnology, from film to software. But the creaking bulk of UK industry lags massively behind the US in what pundits like to describe as the "new economy". Few hi-tech companies of any description over here have grown big enough to warrant a stockmarket listing. Those that have are certainly not thriving like their American cousins, the Microsofts and Genentechs. Many of our designers, actors and architects still have to seek work abroad. Britain's best-known entrepreneurs, such as Anita Roddick and Richard Branson, have been in business for more than 20 years. There are newcomers, but they are either not fashionable enough to have caused a blip on the radar of public consciousness, or they are deeply trendy but their businesses are still tiny.

For Britain has never been any good at nurturing start-up companies beyond the seedling stage. Research has shown that the survival rate for new businesses in Britain lags behind such uncool countries as Austria, Belgium and Switzerland, with only one in a hundred surviving as long as six years. The real injection of new blood into the economy has been the foreign transfusion of inward investment.

The Chancellor and the Employment Secretary are right therefore to emphasise the importance of basic repair work such as creating jobs for disaffected youths and going all-out to tackle the web of problems that add up to social exclusion on the worst estates in our cities - even if the price is chucking a future Noel Gallagher off the social security benefit that is fertilising his creative talents.

Yet they should not be too dismissive of the "cool" hype, however annoying and trite some of it has been. There is truth in the idea that economic prosperity will in future lie in the success of weightless, intangible activities like high technology, finance and all the creative activities at the heart of Cool Britannia. What's more, Britons seem to have a natural aptitude for many of these activities. Our scientists, like our fashion designers, are among the world's greats, and the problem is capturing the raw talent and turning it into real economic success.

Sir John Harvey-Jones, the eminent industrialist, pointed out this aptitude some years ago. He said: "You've only got to look at the people who are written off in this country and see their ability to teach themselves to play the guitar or use computers, to do a host of things outside the system." The problem was not the people but what happened to them. "Get them inside the bloody system, and it becomes smart not to win, smart not to improve." You only have to compare a crowd of enthusiastic primary school children to a sullen mob of adolescents shambling out of their secondary schools to see the truth in his comment.

The Brown and Blunkett tendency in the Government should pin Sir John's observation above their desks and re-read it whenever they are tempted to pen another speech about lifting educational standards or improving training for the unemployed. Modernising Britain is about improving basic literacy and numeracy, but it is also about encouraging the imagination and creativity that will form the key resource in the most successful economies. This cannot be done by injecting the contents of a centralised curriculum in pre-ordained doses into young minds. Nor will detailed reform of the tax and benefit system, important though it is, guarantee future greatness.

There is a lesson for this Labour Government in Harold Wilson's passion for the white heat of technology. In its way this, too, was a Cool Britannia campaign - and Wilson in his mackintosh was as deeply uncool as Tony Blair in his sober suits. But technology fever in the late 1960s served a dual purpose. It enabled the Government to encourage important national industries at the same time as moving the Labour Party's own thinking on industrial policy away from the command and control model of nationalisation and planning dating from the 1940s.

The gritty realists in this government should understand that the Cool Britannia hype is not a mere distraction from the real business at hand. It serves a genuine purpose in reshaping people's ideas about which paths will lead to the necessary modernisation of Britain. It will divert attention from the dead-end of rust-belt romanticism, the nostalgia for defunct heavy industries, and focus effort on thriving areas of business where the UK could enjoy a big advantage.

You can't help suspecting that Gordon Brown is one of the people who would have preferred The Full Monty if Ken Loach had directed it. The Chancellor is to be admired for his social conscience and sensitivity to the vast problems he rightly identifies, but he will have to loosen up a bit if he wants to go down in history as a great reformer. Modernising Britain needs the honesty about past failures but it also needs the hype about future successes.