The UK needs an industrial policy, and fast

21 01 2010

‘Industrial policy’ means in essence an activist approach by the state towards support for and development of the economy. In the UK, state activism in this area was discredited in the 1970s because extensive state financial support for the defunct UK car industry failed at huge expense. In France and elsewhere state support for industry has persisted and is seen as key to economic success.

The future of the UK economy is in a state of chronic uncertainty. Having depended for so long on the success primarily of the financial sector there is now grave doubt about where economic dynamism in the UK can spring from. There is also a growing sentiment that even were the financial sector to recover, over dependence on this one area is very dangerous. This has led to calls to ‘rebalance’ the economy.

Today’s Financial Times carries an analysis of why technology businesses in the UK are not able to offer the necessary dynamism. One key reason given is lack of the necessary support and investment to turn promising small companies into large successful ones. The article points out that Business Secretary Peter Mandelson is now keen on developing an industrial policy for the UK.

So what should an industrial policy look like were we to go down this road? Firstly, what it should not be. Propping up failing businesses in order to save jobs is a waste of money. For that reason the government ‘scrappage’ scheme to enable the buying of new cars was a mistake. Were it not for the fact that the UK no longer has an indigenous car industry no doubt the government would have done what the US did through the nationalisation of General Motors in 2008. Government money should not be used to keep failing industries going.

Nor should an industrial policy be about trying to preserve UK industry in the hands of UK owners as Mandelson has argued in relation to the proposed takeover of Cadbury by Kraft. Generally speaking any foreign buyer will want to keep good businesses going. If there are loss making parts of the business they would  be closed down eventually anyway. The key issue is what new businesses are emerging and growing and that is where the problems of the UK lie.

An industrial policy would first and foremost require a change in the nature of political leadership. The UK government has adopted a managerial approach to the economy for the past 13 years. This worked only because the technology and financial services bubbles kept the economy growing. Now that these bubbles have burst a different approach is required. We need a political leadership which is both entrepreneurial and strategic.

Government needs to be entrepreneurial initially by changing the nature of public debate away from risk avoidance and caution, at every level, towards one of measured risk taking. There is a growing unease  in the UK that we have become stifled by regulation, both state and self regulation, in every area of life. Politicians need to give a lead away from this towards a more self-reliant and entrepreneurial approach to life in general and to the economy in particular. This should then be backed up by specific tax breaks and other incentives to encourage new business and more research and development in older businesses.

Government needs to be more strategic by taking a longer term view of the infrastructural requirements of the UK and investing more where necessary. This is a huge discussion in itself and needs to be looked at in depth. Government should also be encouraging and incentivizing those sectors of the economy which are already successful to be more successful.

I wrote recently of the NASTI approach, No Alternative STagnation is Inevitable,  which dominates current thinking around the economy in this country. For this to be transformed requires a sea change in political leadership away from cautious managerialism  and towards dynamic entrepreneurialism. The upcoming general election campaign offers an opportunity to argue for this radically different way forward.

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7 responses

21 01 2010
Robert Hennecke

Excellent points. The question really is about whether one is growing or dying, there is no standing still.

21 01 2010
Richard Woolfenden

A great read. So many politicians – encumbents and those in waiting – are simply hoping for a revival in the financial sector. The Cadbury’s ownership saga just leaves a distracting, sickly-sweet taste in my mouth (not even bitter with 80%+ cocoa). I suppose, as a utopian technologist, I was hoping Techno UK might provide some answers. Tim Berners-Lee and Nigel Shadbolt’s “data freedom” launch today was inspiring. Ironically, perhaps those UK technology projects that are lucky to recieve state-funding are too tied down by risk-averse policy wonks.

12 04 2010
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[…] reforms, such as encouraging the sick to go back to work. Should government be doing more on the demand side as well, through, for example, creating favourable environments for successful forward […]

9 06 2010
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[…] play in the economy. He has promised to overturn Mandelson’s nascent attempts at reviving an industrial policy for the […]

16 06 2011
David Hill

Sorry slight mistake – resubmitted !

The coalition government has made rebalancing of our economy a high priority. The forecasting group Cambridge Econometrics (CE) looked at the future shape of the economy under their thinking. They concluded that manufacturing’s share of economic output will continue to decline and that financial and business services will carry on expanding to the highest share in modern times. Added to this, the government share (public services) will fall back to where it was in 2000 before the big spending excesses under Labour. So by 2020, CE says that the UK will be even more of a service based economy. Therefore there will be NO rebalancing of the economy. NESTA reinforced this by stating that business services are the largest contributor to growth and will continue to be central to the UK economy.

Unfortunately this will be the case as politicians never, and I say never, think ‘out-of-the-box’. If they did they would start where the history of S&T tells them the seeds of economic dynamism reside and emerge. Unfortunately again, politicians do not read the right things and have ‘pet’ advisers from Whitehall to tell them how to guarantee failure. The latter, something that they are not at all aware of, but where we are as the declining economic history of this dear country has clearly shown – economic decay that will again continue unabated until new radical thinking is firmly introduced. The start has to be the ‘independent’ ideas people who according to the history of the world have created up to 75% of the modern world as we see it today. Indeed the German (1990s) and Japanese (1980s) governments determined that Britain commanded around 54% of this world changing ‘independent’ thinking. Independent thinking is that remote and outside the confines of either universities or corporate research centres. Universally the late Jack Kilby from the USA is a fine example here with the ‘Chip’, as this is now according to Texas Instruments the basis of a US$1.6 Trillion global industry equivalent to the GDP of the eighth largest economy in the world.

Dr David Hill
Executive Director
World Innovation Foundation

24 03 2013
Immigration Lawyer in Ashford

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24 03 2013
Rob Killick

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