A modern Industrial Strategy for the UK – can it deliver?

The long awaited industrial strategy paper was launched this month, albeit in the form of a green paper, which is out for consultation until 17th April. On one reading, it doesn’t represent a wholly new and radical approach, being more a combination of existing thinking from the previous period of government. But, on the other hand, it does seek to take a “whole government” approach, bringing together a range of cross-cutting policy reforms, such as around technical education, with some sensible, new, and more active interventions. These include a significant commitment to research and development, additional investments for regions and sectors, and vital support to back business such as with the employer-led Productivity Council. As our economy exploits high value activities, the commitment to strengthening highly skilled career pathways such as STEM, are also especially welcome, albeit again a well-trodden aspiration that historically has been hard to realise.  It seems the Government wants to support up-and-coming industries to be able to challenge today’s big businesses, but also to make an impression on the long tail of under-performing companies across the UK.

More, specifically this means the Government has confirmed commitments in the Autumn Statement. Positively, this has seen significant extra investments in in Research and Development (£4.7 billion). This combined with those in the Industrial Strategy Challenge Fund and National Productivity Fund provides critical support for new technologies, infrastructure and tackling under-performance. These are important developments, since just over a year ago there were significant questions over public funding with an increasing reliance on mechanisms such as loans and levies to generate finances. It also sets out more detail on devolution, and how the new Productivity Council will deploy £13m to support stronger business engagement and productivity improvements at company level. Furthermore, there are new capital funding commitments in education to support new institutes of technology.

Central to the strategy are a set of ten, what is called, “pillars” which represent strategic mission-oriented and cross-cutting objectves on science, skills, infrastructure, trade, procurement, energy, business growth, sectoral policy, geography and institutions. Companies are also being encouraged in the strategy to strike sector-wide deals across business communities around issues of common concern that target new opportunities and identify constraints, thus enhancing competitiveness. In exchange the Government can take targeted action such as watering down regulations that inhibit growth, and/or using its post-Brexit trade deals to boost exports. The deals are modelled on existing sector-wide initiatives in industries such as automotive and aerospace.

Can it make a difference to economic performance and support inclusive growth?

This approach is in line with recent international strategies[1], which have been particularly important in rapidly growing emerging economies such as China and South Korea.  Latest developments favour a ‘softer’ industrial policy, as opposed to those strongly targeted on “picking winners”. This emphasises cross-cutting, “horizontal” measures that work economy-wide, but are backed up as necessary with targeted interventions in certain sectors. The theory of the ‘mission-oriented’ approach is also to unlock greater cross government working and to better align different policies and resources to focus on common, deep rooted, persistent societal and environmental challenges as well as macro economic objectives such as productivity. The intention then is to stimulate action across many sectors, whilst also supporting policy continuity over time. By so doing, this similarly reduces the risk of capture, and costly and distortionary selective-defensive industrial policy interventions of the past. In this way the strategy has the potential to ensure the sorts of collaborative and sustained action that can secure real long term performance improvements. It does then too have the potential to build the strong partnerships, locally as well as nationally, to pool the knowledge, expertise and resources necessary to manage increasing uncertainty in a modern world and to be more prepared for change. The key question therefore is whether the current approach does enough?

The value of developing the strategy in its own right should not be understated. First, it provides evidence of important all-party, continuity in some areas which hopefully brings an end to the stop start approaches of the past. (For example there are links from the Labour‘s ‘New Industries, New Jobs’, through the Coallition’s key industrial sectors and ‘Eight Great Technologies’, to the Conservative’s ‘Northern Powerhouse’ and the ‘Midlands Engine’). Secondly, such an over-arching approach is a significant development at this time in the UK, with the potential to raise the collective ambition of partners across the country. Usefully too, it can also stimulate a debate around central questions such as:  where the UK economy is?; where we might want it to be in future?; what are core capabilities?; what we might need to do working together across different policy areas to get there?; and in particular how we can strengthen public and private partnerships to really optimise what can be achieved together? In a time of great uncertainty, not least with Brexit looming, the approach can build confidence and a clearer direction of travel (presuming the objectives, policy priorities and commitments are broadly right).

That said, despite the rhetoric of ambitious policy intent, the strategy is light on details of cost, investment and implementation, especially in new policy areas such as technical education. As such there is a greater emphasis on consultation in these areas, which risks a potential mismatch between aspiration and future delivery. For instance, it is no surprise that more questions are asked about what to do about the policy infrastructure to manage the implementation of policies such as the delivery of apprenticeships and high quality work-based pathways or to support business networks, innovation, brokerage and growth. In particular mechanisms to drive employer engagement and to shape and respond to labour market developments, have been severely weakened through many years of austerity and the closure of bodies such as the UK Commission for Employment and Skills. Attempts to strengthen employer leadership through business-led bodies such as the Productivity Council whilst very important will not be able to fill the void left behind quickly and their success will depend on serious, sustained Government backing.

Whilst the ongoing support for devolution is also very good to see, it is not yet clear whether national policy makers genuinely appreciate the limits to a command and control delivery model of the past, where local actions are prescribed from the centre? In turn, will devolution deals truly represent recognition of the need for a strong place-based approach where there is appropriate flexibility to customise local actions to meet the varying priorities of local economies. Yes of course some national co-ordination will be important but equally the real value of devolution must also lie in exploiting local expertise and having room to target services to local residents, businesses and communities varying needs. Furthermore, whilst explicit sector initiatives currently focus on advanced, hi-tech, high value sectors such as creative industries, aerospace, the digital and the automotive sectors, there are concerns that this unfairly disadvantages those sectors which are the big employers such as retail, wholesale and logistics, and hospitality. Will their needs sufficiently be represented through the new sector deals?

So it remains that whilst ambitious intent and regional rebalancing are important priorities, they are easier to aspire to than to realise. Further, with the fiscal position signalled in last year’s Autumn Statement remaining tight, there is concern the strategy doesn’t do enough to signal or support the radical changes required. As such, the new investment funds, whilst important symbolically are probably not enough, and perhaps also remain too supply side focused, to really inspire businesses in scale to take the sorts of ambitious action really required to turn the productivity position around.

[1] OECD (2013) Beyond Industrial Policy. Emerging issues and new trends.