Industrial strategy is no longer the stuff of theoretical debate in the UK. After a decade of looking enviously at other countries – and at least one aborted attempt at getting something similar off the ground towards the end of the last parliament – the financial crisis helped bring the UK’s longstanding lack of industrial strategy into sharp focus.
There is no hiding from the fact that in Britain we are still in the relatively early stages of moving from a consumer-led to an investment and export- driven economy. This is pretty challenging, but an essential journey for the UK to make if it is to have any chance of sustained, long term growth.
Looking at how we get there, the current approach to industrial strategy has some merits. The policy focus on particular sector strengths, matched with a collaborative approach between government and business to overcome barriers to grow together with targeted investment, offers more certainty to companies within those sectors.
But while we now have a fledging industrial strategy, it does not necessarily mean we can think ‘job done’. Our competitors have had decades to evolve their brand of industrial strategy and ensure it is both fit for the future and delivers value for money from government investments.
The UK’s industrial strategy needs to evolve and enjoy some longevity too. The ambition to get the economy on a different growth track demands an approach which goes further than the current limited focus on bits of the economy and bits of economic policy.
A modern industrial strategy for the UK needs to take a whole economy approach with four main ingredients: a clear vision of where we want the economy to head, policy coherence across all government departments, an accountability framework, and targeted investment in the growth technologies and capabilities of the future.
The first element is perhaps the most critical. A 2012 report from the Public Accounts Committee neatly explains the importance of an overarching economic strategy: “The strategic aims of the government, informed by public opinion, should drive every policy decision and align them with tax and spending decisions.” The government of the day must clearly set out an unambiguous statement of priorities which drive decisions and trade-offs by policy makers and offer certainty to investors and job creators about the UK’s business environment.
Given that there is still a long way to go on the road to better balanced growth, the principles of raising our innovative performance, striving to promote our companies globally, dismantling the obstacles to investment and growth, and acting to attract and retain the best talent should be central to a future government’s vision for the UK economy.
Critically, this approach to industrial strategy must tie all parts of government together on a common agenda and set clear milestones that would tell whether the right policies were in place to support the desired economic outcomes. The actions of a single government department will never, on their own, have a meaningful impact on our economic performance, particular if actions elsewhere in government pull in the opposite direction.
Accountability is the third strand of our industrial strategy. Having set out a clear destination for the economy, government must be clear about whether progress is being made towards it. In the same way that we have had clarity and transparency on addressing the UK’s public finances, there has been little real scrutiny of our progress towards better balanced growth. And where there are clear metrics on our economic performance, such as the chancellor’s £1 trillion export challenge, there is no reporting on whether the UK is on track and if not, what’s to be done about it.
More often than not, if it is measured, it gets done. This is not a call for the government to adopt hundreds of performance indicators, rather it is a demonstration that policy makers are sticking to their priorities and will continue to take the necessary steps to meet their economic objectives.
Finally, the future – or what some might traditionally think of as industrial strategy. As an open economy, integrated into global value chains and subject to the cut and thrust of new challenges and opportunities we must ensure that our research institutions and businesses are leading the world in the development and deployment of new technologies. Some of these will come from the sectors that the current government has prioritised as part of its industrial strategy; and some we don’t even know about yet.
Future proofing our industrial strategy will require government to become a more strategic participant in some particular markets, meaning targeted action to provide a leg up, but not a hand out, for new technologies. But again there must be clarity about when and at what scale government will act.
Ultimately business and entrepreneurs will drive growth, investment and job creation in our economy and they will chose to do that where there is a consistent approach from government, a strong supply network and the right business environment. We’ve got so far as agreeing that industrial strategy isn’t about picking winners. We now need to go further and evolve industrial strategy so that it focuses on our economic priorities and getting the weight of all parts of government behind achieving them.
Lee Hopley is chief economist at EEF.