Thumbs up: the coalition is learning from US industrial policy

Kaveh Pourvand, 8 May 2013

Since the Wealth of Nations project here at Civitas began, we have been calling on the government to pursue an active industrial policy. Up until recently, industrial policy has had a bad name, being associated with the (partially) failed efforts of the 1970s. Yet, the most outstanding examples of industrial policy measures are often not to be found in dirigiste France, egalitarian Finland or communist China but in the supposedly laissez-faire USA. For example, in It’s the SMEs Stupid: Lessons From America Lucy Hatton details the plethora of measures, from subsidies to preferential procurement, the country employs to support its SMEs. However, where American industrial policy has really excelled is in using the power of the state to turn pure scientific ideas into commercially viable sectors that the private sector can exploit.

What Mariana Mazzucato refers to as the US ‘entrepreneurial state’ has led the development of new sectors such as computers, jet planes, civilian nuclear energy, the internet, lasers and biotechnology. It is not feasible for the private sector to invest in the early development stage of technologies because the returns are highly uncertain at that stage. This is a legitimate area for state intervention and explains William Lazonick’s finding in the US biotech sector; that while the US state invested $365 billion in life sciences research between 1978 and 2004, private sector investment over the period was significantly less at $206 billion, much of which was during a speculative boom of 1999-2000.

The US model is not of a centralised state agency deciding from on high which technologies will be the most successful in the future. Instead, public agencies like the famed DARPA (which has played a crucial role in many of the sector developments listed above) support and facilitate research networks to facilitate breakthroughs. They may link university researchers who have a good idea with entrepreneurs, subsidise companies that commercialise ideas (but with the discipline to cut off funding when it is not successful) and use government procurement to help the commercialisation process.

In contrast, the UK has not had the capability to turn pure research into commercially and practically useable new technologies, despite our relatively strong science base. That is, until recently. Science and universities minister David Willets praised US industrial policy in a recent speech to Policy Exchange and detailed £600m of new funding for basic science research. More importantly, through the Technology Strategy Board (TSB), the government have created the Catapult programme. These are seven centres focusing on commercialising emerging technologies such as advanced manufacturing technologies, cell therapies and advanced transport systems. Like DARPA, the model is collaborative, based on pooling together and co-ordinating the expertise of the public, private and academic sectors. It looks like a genuinely new and innovative policy addressing a long-standing British weakness. There are legitimate criticisms that these measures don’t go far enough but they are certainly a step in the right direction.