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Time for a new industrial policy

13 February 2015
Time for a new industrial policy

In contrast to many of its European neighbours, the notion that governments should have an industrial policy acquired a very poor name in the UK during the 1970s. Government subsidies to ‘prop-up’ allegedly failing industries were seen as anti-competitive and a waste of public money. Instead of government ‘picking winners’, ‘losers’ were supposedly picking government.

In the aftermath of the financial crisis, however, thinking in the UK – even on the political right – has begun to shift somewhat and attention has focused on what Britain can learn from Germany, northern Europe and, indeed, the United States. This week we run a series of pieces that take stock of this debate ahead of the British general election.

First, as Alan Hughes explains, the technological and globally competitive context in which modern industrial policy is implemented is very different from the 1970s. Multinational companies and information communication technology combine to allow for production stages to be “diced and sliced across different national boundaries”. “Identifying sectors for industrial policy support is now less important than focusing on the different stages in the overall production process in which an economy … can have or develop a competitive advantage,” Hughes writes.

The task is an urgent one, argues Eoin O’Sullivan, because there is a “shrinking window of opportunity” for western economies as emerging economies developing the ability to compete on advanced manufacturing systems. So, while the quality of a country’s R&D technology base will count, above all, it is the speed with which new ideas and technology can be translated into manufacturing and utilised in many different ways that will matter most. For government, winning the ‘race to the top’ means an emphasis on ensuring new skills, infrastructure and R&D priorities. Some countries, notes O’Sullivan, are ahead of the game, as Germany’s Industry 4.0 strategy shows.

Where does this leave the UK? The UK may have begun to shake-off its aversion to industrial policy, but its approach remains flawed. As David Connell suggests, innovation policy in the UK is driven by two government departments, BIS and the Treasury. The former treats innovation policy as an extension of science policy, while the latter remains hobbled by its belief that government should avoid stepping in unless the market has failed. This leads to perverse outcomes: the costly R&D tax credits which were supposed to encourage business to spend more on R&D appear to have had the opposite effect. Part of the solution is to utilise the public sector’s purchasing power to provide customer innovation contracts. Germany’s network of heavily subsidised Fraunhofer Institutes and the US’s use of public sector procurement offer lessons for the UK.

Britain is also far from emulating the ‘social partnership’ approach which sees employers, government and trade unions working together to develop strategies for skills and training. As the UK Commission for Employment and Skills noted in recent report: “compared to countries with strong vocational systems such as Denmark, Germany and the Netherlands, industry leadership and partnership working in the UK is underdeveloped.” In particular, argues Iain Murray, “the concept of ‘employee voice’ is weak”. If it wins May’s general election, Labour is pledging reforms that would strengthen the role of “employee representatives”.

The election may provide an opportunity for new thinking on industrial policy in Britain. As publications such as Chuka Umunna’s Owning the Future, which Policy Network published last August, demonstrate, the opposition has devoted much time to reimaging industrial policy, considering how business and government can work together to generate more balanced and sustainable growth.


Perspectives on industrial policy for the global age


In the technological and globally competitive context it must now operate in, it is a mistake to view selective industrial policy as ‘picking winners’



Industrial strategy and the ‘fourth industrial revolution’


The old 20th century model whereby technological innovation is driven by a small number of countries is rapidly disappearing. In this context the UK needs a ‘national advanced manufacturing strategy’


The need for ‘customer pull’ in innovation policy


There is a need to boost the ‘demand pull’ for innovation to complement the existing ‘technology push’ from research



Industrial policy and skills strategy: a new partnership for growth?


Why employee voice in the strategic direction of skills matters for industrial policy



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