For many years, the idea that a government of the right should have an industrial policy was heresy. The state’s role was to keep inflation and taxes low, then stay out of the way so that market forces could operate. Ronald Reagan summed up the philosophy when he said the nine most dangerous words in politics were: “I’m from the government and I’m here to help.”
The idea that Reagan pursued a form of pure laissez-faire is, of course, nonsense. Plenty of US firms reaped the benefits of vastly increased defence spending in the 1980s, a form of military Keynesianism, that had plenty of technological spin-offs.
Similarly, all Conservative governments in Britain have an industrial strategy, even if they are not always prepared to confess as much. Margaret Thatcher based hers on inward investment and the City of London. Ted Heath was as likely as Harold Wilson to bail out a lame duck. Michael Heseltine was a powerful business secretary in John Major’s government, eager for the UK to be at the cutting edge of the new industries then emerging.
So when Theresa May calls for an industrial strategy to help deliver a “stronger economy and a fairer society”, she is saying nothing new or radical. She is part of a tradition that stretches back to Neville Chamberlain’s industrial interventionism as chancellor in the 1930s and beyond.
The prime minister sketched out her vision for a more active role for the state in the foreword to the government’s green paper – Building our Industrial Strategy – published three months ago. The consultation period ends on Monday and will influence a white paper from the business secretary, Greg Clark.
May’s idea of trying to build a cross-party consensus around an industrial strategy is sensible. Britain’s problem has never been the lack of a plan. There have been plenty of those down the decades. Nor were all the plans useless, although some of them were. Rather, there has been too much chopping and changing, a failure to stick at anything for long. Ministers regularly deliver lectures about the need to eschew short-termism but hardly lead by example.
As the Institute for Government pointed out in a recent report, Clark’s three predecessors in the decade before he got the job all had a different industrial strategy. “From 2008, [Peter] Mandelson looked to use his department to rebalance the economy away from one focused heavily on financial services. He called for a ‘new activism’ and ‘targeted intervention’ for government to invest to support particular enterprises.
“After 2010, [Vince] Cable sought to use government to support themes such as skills, technological development and creating conditions for investment and growth. After 2015, [Sajid] Javid also sought to distance himself from his predecessor, setting out a far more deregulatory and small-state role for government.”
That Germany would have three different industrial strategies in so short a time is unimaginable.
So what could be done to prevent May’s “modern” industrial strategy failing in its promise and before too long being supplanted by the latest fad?
One approach would be to learn from the process that led to the adoption of the UN’s Sustainable Development Goals in 2015. The SDGs are not perfect, but they provide a template for how the government could turn its lofty aspirations into something more concrete.
It sounds obvious, but the first thing to do is to identify the problem. In the case of the UN, it was that too many people were living in poverty despite a growing global economy. May’s motivation is not that different. The economy should work for the many not the few.
Second, break the problem down into its component parts. There are 17 individual SDGs – such as tackling hunger and ensuring universal access to clean water – which are further broken down into more than 160 targets.
The government’s industrial strategy green paper is candid about some of the UK economy’s failings: its weak investment record; the poor level of skills and regional disparities that mean 61% of people live in areas with incomes 10% below the national average. Only two cities outside London – Bristol and Aberdeen – have productivity above the national average.
That’s the easy bit. It’s proved much harder to raise investment levels – Britain has ranked in the lowest 25% of all rich countries in the OECD for investment in 48 out of the last 55 years – to improve skills, and to close the north-south divide.
If the government has a role in trying to tackle these issues, and May is clear that she thinks it does, then Britain needs Industrial Strategy Goals. These should be limited in number, 17 is too many. Dame Kate Barker is chairing the -industrial strategy commission, set up to keep tabs on the Government’s plan as it evolves. She says May and her team need to identify the big things they want to achieve.
Third, set a date for the targets to be reached. In the case of the SDGs, the UN has given itself 15 years, which is a testing but realistic deadline provided action is not delayed.
By 2030, Britain will be in the middle of a robot revolution and the industrial strategy should reflect that. Around a third of jobs in Britain could be put in jeopardy by automation and, as the Institute for Public Policy Research has noted, those with the least qualifications are most at risk.
“The government is developing an industrial strategy which calls for employer-led sector deals to boost productivity and skills. But so far, efforts have focused on high-skill, high productivity, hi-tech export sectors such as automotive and aerospace,” it said.
Fourth, build as big a consensus around the plan as possible. In the case of the SDGs, governments, civil society, the private sector and the multilateral organisations all signed up. Getting everybody inside the tent took effort, but it is vital.
One of the reasons Germany’s industrial strategy has been successful is that the government, business and unions all agree with its broad principles. There would be no change of direction were Angela Merkel to be ousted as chancellor this autumn.
A report by Barker’s commission notes: “To be effective, we believe that any industrial strategy needs consistent application over a long period, probably to be measured in decades rather than years.” In Germany that would not need to be spelled out.
Finally, the industrial strategy goals should have independent monitoring of the progress made, or the lack of it. The government should take its industrial targets as seriously as its fiscal targets, with an independent watchdog created along the lines of the Office for Budget Responsibility. If the industrial strategy is as important as May says it is, ministers should not be allowed to mark their own homework.
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