Towards a coherent industrial strategy for the UK

Richard Jones - Associate Fellow of SPERI, Professor of Physics, University of Sheffield

There’s a summary of the Industrial Strategy Commission’s report on our website, and my colleague and co-author Diane Coyle has blogged about it here. Here’s my own perspective on the most important points.

Weaknesses of the UK’s economy

The starting point must be a recognition of the multiple and persistent weaknesses of the UK economy, which go back to the financial crisis and beyond. We still hear politicians and commentators asserting that the economy is fundamentally strong, in defiance both of the statistical evidence and the obvious political consequences we’ve seen unfolding over the last year or two. Now we need to face reality.

The UK’s economy has three key weaknesses. Its productivity performance is poor; there’s a big gap between the UK and competitor economies, and since the financial crisis productivity growth has been stagnant. This poor productivity performance translates directly into stagnant wage growth and a persistent government fiscal deficit.

There are very large disparities in economic performance across the country; the core cities outside London, rather than being drivers of economic growth, are (with the exception of Bristol and Aberdeen) below the UK average in GVA per head. De-industrialised regions and rural and coastal peripheries are doing even worse. The UK can’t achieve its potential if large parts of it are held back from fully contributing to economic growth.

The international trading position of the country is weak, with large and persistent deficits in the current account. Brexit threatens big changes to our trading relationships, so this is not a good place to be starting from.

Inadequacy of previous policy responses

The obvious corollary of the UK’s economic weakness has to be a realisation that whatever we’ve been doing up to now, it hasn’t been working. This isn’t to say that the UK hasn’t had policies for industry and economic growth – it has, and some of them have been good ones. But a collection of policies doesn’t amount to a strategy, and the results tell us that even the good policies haven’t been executed at a scale that makes a material difference to the problems we’ve faced.

A strategy should begin with a widely shared vision

A strategy needs to start with a vision of where the country is going, around which a sense of national purpose can be build. How is the country going to make a living, how is it going to meet the challenges it’s facing? This needs to be clearly articulated and a consensus built that will last longer than one political cycle. It needs to be founded on a realistic understanding of the UK’s place in the world, and of the wider technological changes that are unfolding globally.

Big problems that need to be solved

We suggest six big problems that an industrial strategy should be built around.

• Decarbonisation of the energy economy whilst maintaining affordability and security of the energy supply.

• Ensuring adequate investment in infrastructure to meet current and future needs and priorities.

• Developing a sustainable health and social care system.

• Unlocking long-term investment – and creating a stable environment for long-term investments.

• Supporting established and emerging high-value industries – and building export capacity in a changing trading environment.

• Enabling growth in parts of the UK outside London and the South East in order to increase the UK’s overall productivity and growth.

Industrial strategy should be about getting the public and private sectors to work together in a way that simultaneously achieves these goals and creates economic value and growing productivity.

Some policy areas to focus on

The report highlights a number of areas in which current approaches fail. Here are a few:

• our government institutions don’t work well enough; they are too centralised in London, and yet departments and agencies don’t cooperate enough with each other in support of bigger goals,

• the approach government takes to cost-benefit analysis is essentially incremental; it doesn’t account for or aspire to transformative change, which means that it automatically concentrates resources in areas that are already successful,

• our science and innovation policy doesn’t look widely enough at the whole innovation landscape, including translational research and private sector R&D, and the distribution of R&D capacity across the country,

• our skills policy has been an extreme example of a more general problem of policy churn, with a continuous stream of new initiatives being introduced before existing policies have had a chance to prove their worth or otherwise.

Laying the Foundations

Our report sets out the emerging findings from the Commission’s work so far. Over the summer we will work to prepare our final report which will be published in the autumn. There is a big opportunity to develop a comprehensive new industrial strategy but it will only be a success if it has sound foundations and offers a positive vision for the future.