On Monday 27th November, the UK government published its long-await Industrial Strategy white paper. Here, Policy@Manchester Co-Director and member of the independent Industrial Strategy Commission, Professor Diane Coyle, reflects on what the document gets right and where challenges remain if the UK economy is to secure a prosperous and productive future for all.
- The Government’s commitment to an Industrial Strategy is a welcome, and overdue, recognition that the orthodoxy of non-intervention has failed to produce its promised results
- The white paper signals seriousness of purpose and identifies many of the areas where government action can make a real difference
- Without the wider consideration of genuine devolution and new economic institutions, Britain’s over-centralisation and regional inequalities still threaten to undo any gains from active industrial policies
End of an orthodoxy
The UK, especially outside London and the South East of England, has paid a steep price for forty years of the pretence that the government does not have a role in the long-term management of the economy, and that everything can be left to the market. That price is significantly lower productivity, and therefore living standards, than comparable countries, decades of underinvestment in transport and other key infrastructure, and the most regionally unequal economy in the western world.
This long-standing Treasury ‘free market’ orthodoxy is nonsense – as our Industrial Strategy Commission report set out. It has now been firmly rejected with the publication of the Government’s Industrial Strategy. For this reason alone, the new Strategy should be welcomed. There were some industrial policy initiatives under the Labour and Coalition governments; this set of proposals is wider ranging and signals an acceptance of the role of government by at least some Conservatives. The grim economic realities – reflected in the recent Budget – might explain why.
The white paper: A welcome step in the right direction
The Government’s Industrial Strategy white paper (.pdf) has many positive aspects, echoing many of our recommendations. It focuses on research and innovation, education and skills, infrastructure, place, and the business environment – all fundamental to long-term prosperity. It also highlights some ‘grand challenges’: using AI and data; low carbon energy and growth; the ageing society; and mobility. These chime with our recent report. Any government is going to have to address issues such as decarbonisation and providing health and social care as the population ages.
The 255 page Government report includes a range of more specific proposals covering innovative sectors of the economy (such as life sciences, aerospace and AI) where it has identified the potential for high productivity performance. The intention is to build out from these areas of strength in the economy and over time consider how to improve performance in lower productivity but important sectors such as retail and hospitality.
The emphasis the new strategy puts on place, and the importance of raising productivity and growth around the whole of the UK is particularly welcome. The regional distortion of the UK compared to any other developed economy is a recent discovery in Whitehall, prompted by the push for devolution from English cities (especially the Northern powerhouse) and underlined by the geography of the referendum and general election votes. This political reality helps explain why even the Treasury is beginning to acknowledge that the orthodoxy in place since the 1980s has had its day.
The Industrial Strategy document has some intriguing hints, such as reference to a ‘Rebalancing Toolkit’ in making decisions about investment in transport infrastructure. We argued strongly in our Industrial Strategy Commission report that the current method of appraising such investments rewarded already-successful places by using current market prices (high London wages and land prices) and taking no account of the potential strategic importance of some projects in raising productivity – and hence market prices – elsewhere. Perhaps the new Toolkit will address this bias.
Institutions and devolution: Two challenges that won’t go away
Having said all this, there are two concerns about the new approach. One is that there is still a need to devolve far more decision-making away from Whitehall and Westminster. Skills policies are one area we argued should be decentralized, as the knowledge about what skills employers need is known locally, not centrally. It is disappointing that Whitehall successfully resisted this move, and it will hamper the success of skills policies.
The other concern is whether the new strategy will be firmly embedded in government and sustained. Business and local decision-makers are keen supporters of a new, strategic approach to the country’s economic challenges. But there is still resistance at the centre, nor it is clear how much political consensus there is, either inside or outside the Conservative party. Yet one of the most disastrous aspects of past economic policies is that successive governments frequently reverse decisions taken by their predecessors, without good reason. This has marred everything from Further Education to energy policy, areas where people are making decisions looking 20 years ahead or more while facing extraordinarily damaging political uncertainty.
This means the institutional framework for Industrial Strategy is vital. The Government is setting up an Industrial Strategy Council composed of business people, investors, and some experts. This falls short of what we advocated in our report, an independent body similar to the Office of Budget Responsibility, with an expert staff and its own budget, to hold political decision-makers to account.
The new Council will need to build on the initial proposals to embed a more strategic approach to how government and the private sector together can act to improve living standards and meet major social and economic challenges. If it does achieve this, then we will really be able to welcome the new Industrial Strategy.