What is industrial strategy in the post-financial crisis, post-Brexit
referendum world?
In 2012, the then Department for Business, Innovation
and Skills (BIS) noted that UK ‘industrial policy’, such as it was, had
shifted since 1979 to focus on ‘horizontal’ encouragement of foreign
investment, competition promotion and market liberalisation. Little of
the earlier sectoral focus remained (save perhaps in the automotive and
aerospace sectors), not least because that earlier conception of
industrial policy had been judged to be ‘ineffective at improving the
long-term viability of the UK’s industrial base’.[9]
BIS’s then industrial strategy was based on several key principles: a
focus on building long-term sustainable growth, open and competitive
markets as the means to stimulate innovation and growth, identifying
‘high value opportunities’ based on the country’s key strengths and
capabilities (and putting government money towards capitalising on
them), and building ‘a collaborative but challenging strategic
partnership with industry to ensure appropriate government intervention which delivers the desired market outcomes’.[10]
The commitment to additional government expenditure on human and
physical capital formation was relatively insignificant and there was
little there that differed from the approach of the preceding quarter of
a century (as with New Labour, old tunes were being played on new
instruments).[11]
What does the post-referendum emphasis on industrial strategy amount
to? Though the rhetoric of reinvention and reinvigoration is loud so
far, it is hard to see what has changed.
The promises made to Nissan to allay its concerns about Brexit and keep
it in Sunderland (and, one suspects, similar promises made to Tata to
encourage its expansion of Jaguar Land Rover) are more reminiscent of
1970s-style ad hoc job preservation than they are of a coherent
overarching industrial strategy on the lines of the 1960s.
As Craig
Berry has pointed out, there is little evidence yet of coherent thinking
or of institutions working together within an overarching programme for
the retooling of a more productive economy.[12]
Crucially, it is far from clear that the treasury is signed up to such a
strategy, and so far its commitments on rebuilding national
infrastructure over and above existing (relatively small) commitments
made since the creation of the National Infrastructure Plan in 2010 are
notably slight, and the hoped-for private sector investment has largely
failed to materialise.
Does the past hold any lessons for present-day proponents of an
industrial strategy?
It is easy to dismiss a century or so of
‘industrial policy’ as a self-evident failure given UK manufacturing is
now ‘a pale shadow of its former self’.[13]
Likewise, it is notable that there has been relatively little change in
the regions seen as underperforming. That suggests a need for some
caution both about the potential of traditional-style ‘regional policy’
and about the scope to reinvent Britain as ‘an industrial nation’.
That said, let’s remember that government interventionism in the
1960s had its successes. The achievements of that decade flowed from the
conscious creation of an interlinked and
wide-ranging strategy that went well beyond promoting the growth of
manufacturing. That strategy was underpinned by a clear and long-term
government commitment (supported by the treasury and prime minister) to
spend money not just on physical investment but on instilling confidence
in private companies that additional investment by them would be
worthwhile (what the government’s then chief economic adviser Alec
Cairncross called the ‘trick of confidence’) and on better education and
training.
On that score, the recent recognition by the OECD’s chief
economist that ‘fiscal initiatives could catalyse private economic
activity’ and enable us to ‘exit the low-growth trap’ [14]
is welcome. The barrier to implanting such an approach in the UK is
that we remain essentially trapped in the ‘austerity’ rhetoric of
2010–15. Here, perhaps the most important lesson of the 1960s is that
well-targeted government infrastructure spending purchases productive
assets with long-term growth potential – and we would realise this if
only we could reconceptualise national accounting to embrace a national
balance sheet as well as an annual government profit and loss account.
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