THERESA MAY, Britain’s new prime minister, has certainly been bold,
maybe even foolhardy, in some of her cabinet appointments. But she has
been equally bold in elevating “industrial strategy” to the top of her
new government’s agenda—a move that could mark a clear break with her
predecessor’s governments. The very term has been frowned upon in
Conservative Party circles since Margaret Thatcher’s leadership.
Yet Mrs
May argued for “a proper industrial strategy to get the whole economy
firing”, in her pitch for taking over from David Cameron. And once
installed in Downing Street she quickly created a whole new department,
of “Business, Energy and Industrial Strategy”. Why has Mrs May decided
to buck a generation’s worth of political orthodoxy?
The phrase
in Britain will always be linked to the Labour governments of the 1970s,
and to the ruinous industrial failures of that period. In an era in
which Keynesian economics and planning dominated policymaking, it was a
left-winger, Tony Benn, who proclaimed the need for such a strategy.
This was mainly in response to the obvious failings of Britain’s
unprofitable, strike-prone and outmoded industrial base.
As minister for
industry in the middle of the decade Mr Benn intervened ever more
closely in loss-making companies such as Triumph motorcycles, just as
his immediate successors intervened on a much larger scale to prop up
huge corporations such as British Steel. Almost all these interventions
failed disastrously, losing billions of pounds for taxpayers without
saving the companies; the strategy was derided as “picking winners”.
After Mrs Thatcher became prime minister in 1979 the nationalised
industries were largely broken up and, in a new era of free-market
economic liberalism, the notion became unfashionable. Even when the
Labour Party was restored to power under Tony Blair after 1997, it
remained firmly off the agenda.
But the tide began to change at
the end of those New Labour governments, when Gordon Brown was prime
minister. Once again, it was a sense of crisis that spurred a renewed
interest in industrial strategy, this time the financial crash of 2008
and the subsequent recession. Politicians were convinced that the
economy had to be “rebalanced” away from an over-reliance on financial
services and more towards industry and manufacturing. George Osborne,
the chancellor of the exchequer in David Cameron’s first coalition
government, called this policy the “march of the makers”.
Sir Vince
Cable, the Liberal Democratic business secretary in the coalition, began
to speak enthusiastically again of industrial strategies. He singled
out 11 industries with which the government would build long-term
“partnerships”, including carmaking and aerospace. Mrs May is likely to
continue these sorts of government investments. She has also indicated
that her strategy will include raising Britain’s chronically low
productivity, pressing ahead with big infrastructure projects and more
house-building. She also wants to spur growth outside London, and not
merely in the “northern powerhouse”, around Manchester, much favoured by
Mr Osborne.
There must be doubts as to how far Mrs May can take
an industrial strategy in a majority Conservative government. For now
the policy remains somewhat inchoate, but already free-market types are
worried. Mark Littlewood, head of the Institute of Economic Affairs, one
of Mrs Thatcher’s favourite think-tanks, argues that adopting even a
limited industrial strategy could tempt the government into going
further by propping up loss-making industries such as steel—especially
once Britain leaves the EU and is no longer bound by European rules
against state aid.
So far it seems mild enough. But, aware of a popular
mood souring against globalisation and a government keen to occupy the
political centre-ground abandoned by Labour, many Tories will be on the
lookout for signs of mission creep. Well-intentioned interventions could
quickly become counter-productive. Yet as the economy deteriorates, the
calls for an industrial strategy will grow louder.
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