Will industrial strategy be confined to the past once again?
Joe Wright, 10 June 2015
Britain’s economic recovery has been driven by a resurgent London. In place of the financial collapse came the ‘Flat White Economy‘, spurred by highly skilled immigrants and in-migrants coming to work in London’s digital technology and creative sectors – estimated to make up a third of UK growth. While the surge is welcome, it has done nothing to rebalance the UK either toward manufacturing, or the regions.
The Northern powerhouse strategy is one element of the government’s rebalancing plan. Devolving power to the regions through city mayors is an attempt to place greater control over spending and public services outside of London – uniting power with accountability.
The other component is the government’s ‘modern industrial policy’, which has experienced something of a renaissance. After the shock of the financial crisis gave manufacturing renewed economic importance, a consensus began to emerge that the free market purism of the 1980s had thrown the baby out with the bathwater; while government should not ‘pick winners’ or try to ‘manage’ industry, it had ‘been wrongly written out of the story of how innovation happens’. An influential paper by Mariana Mazzucato in 2011 outlined the role institutions like the Small Business Innovation Research programme played in US innovation. It funded programmes responsible for the internet, the web, GPS, fracking and, more famously, much of the technology used in Apple products – touch-screen displays, semiconductors and hard drives were all backed by public money. In the UK, the Chancellor is continuing to back the development of new materials such as graphene. It is yet to make its way to market, but that is the point: government is more patient than private equity. In all, the strategy has introduced various schemes aiming to support skills and investment in 11 key sectors.
However, despite the Chancellor’s reaffirmation that he’s a ‘champion’ of modern industrial strategy, his Business Secretary, Sajid Javid, is yet to express an opinion. According to an industrialist working with BIS, ‘We were told by officials at the department that we should not use the expression ‘industrial policy’ anymore and that Sajid sees it as a Liberal Democrat phrase.’ This is denied by BIS officials, but it is concerning that Mr Javid has said nothing substantial on a key policy of his department – a policy that appears under a section called ‘We will continue to invest in science, back our industrial strategies and make Britain the technology centre of Europe’ in the 2015 Conservative manifesto. As a former economist he is well placed to comment on the relationship he would like to see between state and business. But all that is known about the new secretary is that he intends to raise the thresholds for strike action and further deregulate the labour market – and keeps a portrait of Lady Thatcher in his office.
BIS will face cutbacks this parliament as an unprotected department. But as pointed out by a former special advisor to Vince Cable, there are few savings to be made in industrial policy. What is more, the sectors BIS is involved in already face investing uncertainty over Britain’s place in Europe. More doubt will make matters worse. Mr Javid should also note the latest trade figures, which show modest improvement in exports. Why rock the boat when there are at last signs of plain sailing?
Joe Wright is Research Fellow for Civitas’ Wealth of Nations Project. He is co-author of a study on mergers and acquisitions in the aerospace supply chain published this Friday by Civitas. Follow him @JoeWtweets