As Brexiteers shout “forward” and remainers chant “ back”, the battle over the EU dominates British politics. Yet it obscures a more basic British problem. Our clapped-out economy, brilliant at consumption, poor at production, is becoming unviable. A “nation of shopkeepers” has become a nation of shoppers, dependent on debt.

Deindustrialisation and misguided economic policies have reduced the former workshop of the world to a level where Britain can neither pay its way, nor afford the defence and public services an advanced society needs. Everything in which we once were leaders – ships, railways, TV, great bridges, nuclear plants, bicycles, textiles, clothing, even Kit Kats – we now import.

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We consume more than we produce, leading to an annual balance of payments deficit rising above 6% of GDP, financed by borrowing and selling companies, property and citizenship to survive. The result is a sluggish economy (a growing proportion of which is owned by foreigners); low productivity (because the manufacturing sector has shrunk to one-tenth of GDP); and static pay, as every sector except finance cuts costs to survive.

Being in or out of the EU has little relevance to this basic problem. The EU is a market, not a mutual support system. Instead of redistributing growth to succour laggards it punishes them, as it has Greece. It drains us and proscribes the techniques of nurture by state aid, protectionism and devaluation by which Germany and France grew. Its “aid” is just our own money back, with the EU’s heavy costs taken out. Even worse, Germany’s huge surpluses mean that deficit countries like the UK, with our £60bn-plus trade deficit, are compounded by the single market.

Yet coming out offers no solution either. It generates uncertainty and deters investment. Most of world trade is controlled by multinationals, and Britain would be more vulnerable to their ministrations. Tory Brexiteers aim at turning us, down and dirty, into a low-wage, deregulated, cost-cutting tax haven-on-Thames. Hardly acceptable to an electorate that has already endured decades of that.

Training and upskilling are little use without industries to employ the beneficiaries

The only solution is to rebalance an economy excessively dependent on finance and services by widening the manufacturing and production base and making it competitive. Neither free trade nor the single market will do that. New industries don’t just come, still less grow to scale, or become national champions like VW, Samsung or Toyota, unaided. The only historic model of rebuilding is that used by Germany and Japan after the second world war, and later by young dragons such as Korea and Taiwan, followed now by China.

All built powerful exporting sectors by the opposite methods to those that have reduced Britain to its present pass. They used a devalued exchange rate, deliberately kept low to penalise imports and boost exports. They built up powerful exporting sectors and strong competitor companies by industrial policy, state support and investment, while restraining domestic demand to channel ability and investment into production. The result was a process of continuous improvement, while Britain wound down.

Harsh treatment, but what alternative do we have? Neoliberalism has damaged, not boosted. Shelf-stacking and delivery driving for the consumer society offer few prospects. The Washington consensus doesn’t work. Training and upskilling are little use without industries to employ the beneficiaries. The financial sector is better at producing wealth for the few than jobs for the many.

The government’s new industrial strategy offers hope without muscle. Our civil servants are hopeless at working with industry. We lack the French pantouflage skill at transferring their elite civil servants between public and private sectors, while Treasury rules make financial support bureaucratic and restrictive. Our governments have been generous to the banks, not to manufacturing. Finance prefers safe lending on mortgages to venture capital. Our unions don’t work like the German ones do in the Mitbestimmung system. Our companies look to short-term profit rather than long-term growth. Our capitalism is better at rent-seeking than competing.

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Serious policies of state support, economic discipline, corporate governance and investment priorities are essential to make Britain’s economy fit for use, in or out of the single market. Widening and deepening our industrial base requires a substantial devaluation, a restraint on domestic living standards, an industrial policy sustained by state intervention, investment and a venture capitalism that will allow a hundred plants to blossom. Britain won’t make it unless it can make things and sell them to the world.

The prospect is daunting. Hopes for a government strong enough to do it look slim, and an electorate already alienated by years of austerity to no purpose won’t welcome more tough measures. Perhaps we’re set on a path of decline which has to go further and hurt more, before anything is done. Yet nothing will be, unless our political elite grasps the real problem. The argument over EU membership is just another distraction.

• Austin Mitchell is a former Labour MP for Grimsby and public accounts commissioner. He is the author of The Revenge of the Rich