The publication of a green paper last week provided the first comprehensive description of the government’s thinking on its industrial strategy. The strategy is built around ten areas of policy that influence productivity performance and economic growth. Most of the chosen policy areas are unsurprising, and include staple economic policy topics such as infrastructure, skills and international trade. But some parts of the strategy are new and thought-provoking. Of particular note are the ideas around how sectors should organise themselves to engage with government and how “missing” institutions (trade bodies, financial networks etc.) could hinder the development of industries or places. Greater detail of how these chosen areas of focus will translate into practical policy can be expected following the responses to the green paper. With this in mind, it is worth reflecting on what is good and what is not-so-good about the first version of the strategy.
One of the positive features of the green paper is that it gives a full and correct diagnosis of the economy’s weaknesses whilst also recognising its strengths. Although an obvious thing to say, any industrial strategy should ask how it can address economic failings as well as build on the things that bring economic success. To give a simple example, when discussing international trade it would be incomplete to reference the UK’s sluggish exporting performance without recognising its accomplishments in attracting inward investment.
Another positive of the document is that there is no pretence that the industrial strategy’s interventions will see immediate results, with the message instead being that policy certainty and long-term commitment to the strategy are necessary to make a difference. This is common sense and undoubtedly the right approach, but the political cycle will make it hard to achieve. Policy long-termism requires future governments to accept the strategy and continue with it, but new administrations have a tendency to rip-up policy constructs that have not been designed by them. This is something that deserves more attention as the strategy develops.
Despite being a consultation, the strategy did present a package of existing action and new announcements to match to each of its ten areas of policy focus. The list of existing action serves as a reminder that although the industrial strategy provides a coherent narrative and logical approach to intervention, much was already being done to try and address the issues holding back the economy. The list of new policy measures were sensible but also relatively small scale, such as the revamp of technical education and the use of HMRC data to better identify and target potential exporters. Although this collection of existing and new policy presents a picture of definitive action, the number of open or not yet started reviews referenced by the green paper suggests that there is a lot more to come. The topics of the reviews range from the provision of patient capital to business energy costs, and from entrepreneurship to the business expertise of local government. These reviews will hopefully mean a better understanding of economic problems as well as mean better policy.
Some of the new ideas in the strategy provided a good indication of the government’s philosophy on intervention. This is certainly true of the new “sector deals” that are being proposed – essentially, a challenge to any sector or industry to coalesce behind strong leadership and dictate the relationship it has with government. It is a move reminiscent of the devolution process, where local areas were challenged to come to government with a united vision of what powers they would like decentralised to them. The strategy also states that in proposing a sector deal there has to be due explanation of how the sector fits with the vision of an open, competitive, innovative economy and be based on long-term thinking. Within these parameters there is a real opportunity for established industries to reinvent their relationship with government and for new industries to create a relationship. It will be interesting to see which sectors respond to the government’s challenge.
The one criticism that could be levelled at the green paper is that it is potentially too safe. True, not every new policy has to be radical and there is significant merit in iterative development of interventions. However, some discussion of alternative policy direction is merited. For example, the strategy talks about young people, education choices and careers advice. There are ideas out there to completely reform the job centre and create youth employment centres that are dedicated to the career paths and training of those aged 16-24. Another example of a big idea is Lord Heseltine’s suggestion that there should be an enhanced role for Chambers of Commerce to provide business support, even arguing that this could include compulsory membership. This is something that could have been discussed in the context of the green paper’s arguments about missing institutions.
In summary, the green paper identifies the right problems, raises some interesting ideas and does present a coherent picture of what the government is trying to do with economic intervention. It is, however, short on big ideas that could radically alter how state intervention works and short on detail about how it could be made truly long-term. That said, the strategy is only at the discussion phase and there is time to think about both of these issues and address them.
In the coming weeks the government will publish a discussion paper outlining some of the policy direction behind its industrial strategy. Up until this point the only hints as to what it will include have been the occasional speech and select committee hearing. From these, we have learned that the new strategy will favour policy that is localist, cross-sector and long-term in nature. But while we await more detail of this approach it is worth picking up on something else that Greg Clark - the Secretary of State responsible for creating this new model of intervention - has said. Responding to a question about how metrics would be used to evaluate the success of the industrial strategy he explained that he did not want to establish targets just for the sake of it.
At this early stage of policy development it is entirely sensible to resist the tendency of politicians to announce that they intend to reach an ambitious target. These targets can take different forms, such as the number of people affected by an initiative, or the amount of money that is to be spent or saved; they are almost always a round number and almost always have a set date by which they will be achieved. David Cameron's administration had an aspiration to export £1 trillion of goods and services by 2020, a commitment to create 3 million apprenticeships by 2020 and a manifesto pledge to reach a fiscal surplus by 2018-19. Looking back further, the famous New Labour "pledge card" in 1997 outlined how it would cut class sizes to below 30 for 5, 6 and 7 year olds and get 250,000 under-25s off benefits and into work. This list could go on and on.
Creating targets can be a positive addition to the policy debate if they are set in the right context. Firstly, they can provide a clear indication of a government's ambitions and priorities. As Sir Nicholas Macpherson, the former Permanent Secretary to the Treasury, noted of George Osborne's surplus target, "I’ve only had four years in 31 at the Treasury when there has been a surplus. If you don’t aim to get the surplus, you’ll never get there". Secondly, they can create focus on solving a particular problem. The collective talents of civil servants, industry, think tankers, rep bodies and academics will have a specific policy question to put their minds to, potentially reaching new answers in the process. Thirdly, they can provide accountability. Take the Conservative's failure to reduce net migration to below 100,000 as an example - migration is a big issue for the public and the 100,000 figure has meant senior politicians being held to account on that issue.
Despite these positives, if the consequences of targets are not thought through, or are simply arbitrarily set, they can act to restrict the flexibility and effectiveness of policy. An example would be the last Labour administration setting a child poverty reduction target predicated upon narrowing relative income levels, with the best policy lever to achieve it being to ratchet-up the value of Tax Credits. This approach was expensive, some would argue ill-conceived, and meant that the ability to focus money on the root causes of child poverty was hampered. A closer look at the net migration target offers another example of the undesirable policy outcomes of a target. EU membership means that no policy lever is available to stop EU citizens coming to live and work in the UK, hence other groups, such non-EU students, facing more stringent migration controls. This is potentially damaging to both universities and to the economy.
It is also worth mentioning one specific additional point related to the setting of targets, which is that there has to be the ability to robustly measure success against them. This is not always the case. For example, the government has said that it wants to build one million homes in England over the course of this Parliament. And yet the Home Builders Federation has convincingly argued that the house building statistics being used to measure success against this target are methodologically flawed, underestimating the supply of new build homes by around 30,000 each year.
It is clear that the new industrial strategy will take some time to be fully configured – the discussion paper soon to be published by the government may be followed by a White Paper at some point later in the year. There is nothing wrong with this type of slow and steady policy development, especially given that the stated aim of Greg Clark's is to build something that will last for decades. So far, the temptation to create an arbitrary set of targets against which to measure success seems to have been avoided. This is a good thing and should only change if the government is confident that setting targets will not negatively skew the policy response to important economic issues.