We consider the UK to have one of the world’s best economies. We’d better think of Taiwan | Larry Eliot

IInflation is at a 40-year high. Grocery bills are rising. Pensioners fear rising energy costs so much that they delay turning on their central heating. “Exciting” public spending cuts and tax hikes lie ahead. But that doesn’t matter. Everything will be fine now that the adults are back in charge.

Jeremy Hunt was at his best in his Commons debut this week. The government has learned the hard way that you renounce orthodoxy at your peril. Abacus economics – mocked by Liz Truss during her bid for the leadership – is crucial if Britain is to capitalize on its fundamental strengths.

At the moment, the new chancellor admitted that it is impossible to avoid difficult decisions, but in the long term the future looks bright. Hunt then dived into a familiar riff, listing all the things Britain had to offer provided it swallowed its latest dose of austerity medicine: three of the world’s top 10 universities; a global financial sector; “incredible strength” in creative industries, science, engineering, manufacturing and innovation.

There is a lot to be said about this. The first is that the record for doing things the orthodox way has been pretty terrible in the 15 years since the global financial crisis. Real wages have barely risen, investment has been weak, public finances have never been recovered and the UK trade deficit has hit new records. Truss was wrong on many things, but her basic criticism was spot on: the British economic model isn’t working.

And while Hunt is right when he points to the things Britain is doing well, he’s really only looking at the assets side of the balance sheet. The debit side reads much darker. Britain depends on foreign investors to fund its massive double budget and trade deficits; the NHS is in perpetual crisis; a lack of critical energy infrastructure means the lights may go out this winter; trust in the police to solve crimes such as burglary is at rock bottom; The transport system is ailing.

The economy relies on hot money flowing through the City of London to fund the trade deficit and keep the property market booming. It works for a wealthy elite living in London and the south east of England, but not for the population as a whole. Inequality is widespread and the informal labor market, where work is sporadic and poorly paid, has expanded rapidly. All of these are characteristics of a struggling developing or emerging market economy and not one in the front row of nations.

Moreover, it is difficult to imagine how the new age of austerity will improve the situation. There will be less money to upgrade infrastructure and more cuts to already scarce police forces, courts and prisons. Treasury-enforced public sector wage moderation will accelerate the loss of staff to the private sector, while the highest tax revenues in more than 70 years will discourage private investment. It is becoming more difficult for people to move around the country, but easier for them to slide into poverty. There are good reasons for the state to protect its citizens from an external shock to inflation, but that support will now only last for six months. Tax hikes and spending cuts during a downturn will deepen and prolong the recession.

Truss’s botched experiment is a setback for any kind of new thinking, and it’s a depressing prospect. The continuation of abacus economics may keep financial markets quiet for a while, but what the rule of technocrats like Hunt really offers is controlled decline. The only sustainable way to sound public finances is to improve the performance of the economy.

It is not, as some like to imagine, just about reversing Brexit. Since the 2016 referendum, UK growth has been nothing special, but it has been faster than Italy and Germany and only slightly slower than France.

One way forward would be to rethink the UK as an emerging market economy, aiming to emulate the success of, say, a country like Taiwan, which produces 65% of the world’s semiconductors and 90% of its advanced chips.

There are a number of stages in this process. Stage one involves acknowledging the fact that the UK is not the world’s best economy and has not been for some time. Phase two is about thinking: a sustained commitment to improving education and skills. Stage three involves building developing sectors that provide goods and services to boost exports, reduce the trade deficit and reduce the economy’s dependence on the financial sector.

Assuming they survive Hunt’s axe, Truss’ investment zones – areas benefiting from tax incentives and deregulation planning – are one possible way to build. This model led to the development of Canary Wharf, home to much of the financial sector, on reclaimed land in London’s Docklands.

An alternative would be a national development plan designed to promote the industries and services of the future. The tigers of East Asia used the full range of policies at their disposal, including taxes, procurement, public ownership, state subsidies, support for fledgling industries, and capital controls.

Governments here have been wary of activist economic strategies, in large part due to a belief that the UK’s problems are minor and temporary. It is becoming increasingly clear that they are not.