Jeremy Corbyn wants new support ships for the Royal Navy to be built in British shipyards. He thinks it is wrong for the production of the UK’s post-Brexit passports to go to a French firm. Under a future Labour government, the state would use its buying power to support manufacturing.

The response to Corbyn’s Build it in Britain strategy was swift and predictable. Bracketing Corbyn with Donald Trump, the Institute of Directors (IoD) said protectionism is not the way forward for a post-Brexit Britain. Politicians must recognise the benefits of open, liberal markets.

Britain has certainly shown strong support for open, liberal markets for the past four decades. Value for money for taxpayers demands that public contracts should go to the lowest bidder. The UK welcomes foreign capital, whether it is to buy up property in London’s Belgravia or to gobble up Britain’s largest tech company, ARM, bought by Japan’s SoftBank in 2016.

And, despite what the IoD thinks, the experiment has been a colossal failure. Britain’s growth model – flexible labour markets, a laissez-faire takeover code, debt-fuelled consumer spending and an indifference to the fate of manufacturing – is broken. Living standards have flatlined. Wages have grown in the past decade at their slowest rate in 200 years. Productivity has stalled. The ready availability of cheap labour has meant there is little incentive for firms to invest in new capital or staff training. As the CBI has reported, the lack of investment means that British industry runs into supply bottlenecks as soon as there is a modest pick-up in demand.

Corbyn rightly calls the belief in free markets “magical thinking”. Britain now has the smallest manufacturing sector as a share of its economy of any G7 nation, coupled with the weakest investment rate. The country that brought the world the industrial revolution has not run a surplus in trade in goods since 1981.

So the idea of using the purchasing power of the state as support should be welcomed. It recognises that the two sectors of manufacturing where the UK remains a global player – pharmaceuticals and aerospace – have benefited from the procurement policies followed by the NHS and the Ministry of Defence. It also takes account of the fact that there is a hidden cost to always opting for the lowest bidder: a loss of skills and tax revenue from well-paid workers losing their jobs. Britain has paid a heavy and enduring price for the hollowing-out of manufacturing.

No other country has pursued open, liberal markets with quite the gusto shown by Britain. As Corbyn noted, it is unlikely Emmanuel Macron will outsource production of French passports to a British firm. Germany builds its own trains. The Americans support manufacturing through defence spending and have a notoriously tough takeover regime.

Doubtless, Build it in Britain will be portrayed as a desire to thrust Britain back to the 1970s, but using tax, trade policy, procurement and subsidies to support industry is not really that radical. It is what other countries do.

• Larry Elliott is the Guardian’s economics editor