The industrial strategy - the good and the not-so-good

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.  
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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.